- Following the announcement of lower-than-expected US inflation figures yesterday, bulls managed to push the EUR/USD currency pair above the psychological resistance of 1.1000, with gains extending to the 1.1047 resistance level.,
- This is the highest for the currency pair since the beginning of 2024.
- Concurrently, this upward rebound is awaiting more important US economic releases that will shape the closing of trading for this week.
According to the results of the economic calendar, the inflation rate in the United States slows to its lowest levels in 2021. In light of an official announcement, the annual inflation rate in the United States slowed for the fourth consecutive month to 2.9% in July 2024, the lowest level since March 2021, compared to 3% in June and less than expectations of 3%. Inflation in shelter (5.1% vs. 5.2%), transportation (8.8% vs. 9.4%) and clothing (0.2 vs. 0.8%) fell. Prices for new vehicles (-1% vs. -0.9%) and used cars and trucks (-10.9% vs. -10.1%) continued to decline, while food inflation was steady at 2.2%.
On the other hand, energy costs rose slightly (1.1% vs. 1%), mainly due to gasoline (-2.2% vs. -2.5%). On a month-on-month basis, the CPI rose 0.2%, following a 0.1% decline in June, in line with expectations, with shelter costs rising 0.4%, accounting for nearly 90% of the monthly increase.
Meanwhile, annual core inflation also slowed for the fourth straight month to 3.2%, the lowest reading since April 2021, compared to 3.3% in June, in line with expectations. Furthermore, the monthly core inflation rate also rose to 0.2% from 0.1% as expected.
According to Forex trading, the bullish sentiment was fueled by growing speculation that the US Consumer Price Index (CPI) will support a rate cut by the US Federal Reserve at its September meeting. This speculation was fueled by the weaker-than-expected US Producer Price Index (PPI) on Tuesday, which boosted high-yielding stocks.
Overall, when the US inflation data was released, it initially pressured the US dollar. The CPI rose 2.9% year-on-year in July, down from 3% in June, while the core CPI, which excludes volatile food and energy prices, rose 3.2% – slightly below the previous 3.3% but in line with expectations. Both the monthly headline and core CPI showed modest increases of 0.2%.
The immediate market reaction saw the US dollar fall as the data suggested the US Federal Reserve may be more inclined to cut interest rates in September. However, as the market processed the information, it became clear that the data did not significantly change the current economic outlook.
As a result, the US dollar regained some ground, albeit not enough to turn sentiment bullish. As Wall Street markets approached the open, markets continued to look for direction, with risk appetite dominating.
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EUR/USD Technical analysis and forecast:
As we mentioned before, the stability of the Euro against the US Dollar EUR/USD above the psychological resistance 1.1000 will support the bulls' control over the general trend. Thus, if gains increase to the resistance levels 1.1060 and 1.1120, the technical indicators will move towards strong overbought levels. From there, it is better to sell. On the other hand, according to the performance on the daily chart, the support level 1.0820 will remain the most important to end the idea of the continuation of the upward trend.
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