Euro Selling on Cash Flows, Despite Higher Eurozone CPI Inflation

Yesterday, the euro experienced a brief wave of selling pressure ahead of the month-end London fix,  despite the higher Eurozone CPI, as some euro positions were unwound. These moves often dissipate as the trading day concludes. The EUR/USD pair, which had gained nearly 3 cents between late June and mid-July, has been declining but the 1.08 level is holding.

This decline was primarily driven by a drop in the USD in the second week of July, which brought the pair close to 1.0950. However, the pair faced resistance at the 100-week SMA (red), leading to a reversal, especially in the absence of strong positive catalysts for the Euro. Over the past two weeks, the EUR/USD has been trending downwards, with a current target around the 100-week SMA (green) near the 1.07 level.

EUR/USD Chart H4 – The 200 SMA Is Holding As Support

The core inflation reading remains the most crucial figure, and it has stayed unchanged since June. Currently, the disinflation process in the euro area is progressing slowly, making it challenging for the European Central Bank (ECB) to gain confidence in the economic outlook. A rate cut in September is not a certainty at this point; much depends on the economic data we receive in August. Traders are currently pricing in about a 67% chance of a rate cut, which is nearly the same as the 68% probability observed earlier in the day.