EUR/USD Targets $1.1809 as Dollar Weakens on Fed Cut Speculation
Friday’s European session saw EUR/USD move higher, peaking at $1.1692 as the US Dollar weakened. This followed stronger than expected...
Quick overview
- EUR/USD rose to $1.1692 as the US Dollar weakened following strong US PPI data.
- The US labor market showed resilience with a decrease in Initial Jobless Claims, while July Retail Sales are expected to rise.
- Despite the euro's gain, the Eurozone economy remains fragile with weak GDP and industrial production figures.
- Technical analysis indicates a potential breakout for EUR/USD above $1.1728, with bullish and bearish trade strategies outlined.
Friday’s European session saw EUR/USD move higher, peaking at $1.1692 as the US Dollar weakened. This followed stronger than expected US July Producer Price Index (PPI) data which showed wholesale prices up 0.9% month-on-month – the biggest gain in three years – and 3.3% year-on-year, above forecasts of 0.2% and 2.5% respectively.
Core PPI matched this strength, up 0.9% month-on-month and 3.7% year-on-year, both beating expectations. This dented hopes of a 50bps Fed rate cut in September but left a 25bps cut as the market’s base case. The softer rate cut outlook weighed on the dollar and gave the euro an extra boost.
The US labour market also showed resilience with Initial Jobless Claims down 3,000 to 224,000. July Retail Sales are expected to rise 0.5% which means consumer spending is steady despite tariff tensions.
Eurozone Data Still Weak
While the euro gained on USD weakness, the Eurozone’s own economy is still fragile. Q2 GDP was confirmed at 0.1% quarter-on-quarter and 1.4% year-on-year, down from 0.6% and 1.5% previously.
Industrial production fell 1.3% in June, more than expected and down 0.2% year-on-year. Employment rose only 0.1% from the previous quarter, showing the region’s lack of momentum. These numbers highlight the Eurozone’s struggle to grow and will limit the euro’s upside if US data is dollar supportive.
EUR/USD Technicals: Triangle Breakout in Play
On the 4-hour chart, EUR/USD is consolidating in a symmetrical triangle, pushing towards the $1.1728 resistance trendline and holding higher lows since early August. The 50-SMA at $1.1646 is acting as support, RSI is near 60 and MACD is about to cross bullish.
A break above $1.1728 could see $1.1809 and $1.1884, a close above the triangle would confirm the momentum. A rejection could see the pair back to $1.1646 and a break below this level could target $1.1534.
Trade:
- Bullish: Buy above $1.1730, SL $1.1690, TP $1.1809/$1.1884.
- Bearish: Sell below $1.1640, SL $1.1680, TP $1.1534.
Watch for confirming candles like bullish engulfing or three white soldiers for upside or shooting star/bearish engulfing for downside.
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