EUR/USD Market Update

• The EUR/USD increased by 0.10% to 1.1417 despite robust US economic indicators.
• The US Core PCE inflation rate climbed to 2.8% year-on-year, with initial unemployment claims dropping to 218,000.
• The Federal Reserve voted 9-2 to maintain interest rates, with Powell downplaying expectations of a rate cut in September.

On Thursday, following strong economic data from the US, the EUR/USD pair gained some ground. This development seems to support the Federal Reserve’s cautious stance on lowering interest rates, as evident from the previous day’s discussions. Currently, the exchange rate stands at 1.1417, maintaining its stability.

Right before Wall Street opened, the Fed’s favored inflation indicator—the Core Personal Consumption Expenditures (PCE) price index—exceeded predictions, indicating that prices are rising beyond last month’s levels. Additional data confirmed that the labor market remains strong, as the number of Americans submitting unemployment claims dropped below expectations.

The day before, the Federal Reserve opted not to change its rates, with two dissenting votes. Governors Michelle Bowman and Christopher Waller advocated for a 25 basis point rate cut. In a press conference, Fed Chair Jerome Powell emphasized that a September rate cut is not guaranteed.

This led to a rise in the US dollar, as reflected in the US Dollar Index (DXY), which moved up by 0.16% to 100.05.

Meanwhile, in Europe, inflation appears to hover around the European Central Bank’s (ECB) 2% target, following new CPI data from Germany, France, Italy, and Spain.

Market participants are gearing up for the upcoming July non-farm payroll figures being released on Friday, alongside the ISM Manufacturing PMI and Consumer Sentiment Index from the University of Michigan.

Daily Digest Market Overview: EUR/USD Remains Stable Amid Strong US Employment Report

• The initial jobless claims for the week ending July 26th dropped to 218,000, outperforming the anticipated 224,000. Economists predict 110,000 new employment benefits in the July non-farm payroll report.
• The Core PCE, the Fed’s key inflation measure, increased by 2.8% year-on-year in June, slightly up from 2.7% in May. Simultaneously, the headline PCE rose from 2.3% to 2.6%, just above market expectations of 2.5%.
• The Fed’s monetary policy statement pointed out that while unemployment remains low and inflation is slightly elevated, economic growth has slowed in the first half of the year.
• The committee reaffirmed its objectives of maximizing employment and maintaining inflation at 2%, while acknowledging rising uncertainties about the economic outlook.
• The released US GDP figures surpassing expectations for the second quarter, along with solid ADP employment statistics, support Powell’s assertion that current economic conditions don’t indicate a restrictive monetary policy.
• In the Eurozone, inflation in Germany decreased from 2% to 1.8%, while Italy’s figures fell from 1.8% to 1.7%. France’s inflation slightly exceeded expectations at 0.9%, and Spain’s inflation rose from 2.3% to 2.7%.
• Looking ahead, Deutsche Bank does not anticipate further reductions in ECB policy, forecasting a potential rate hike by the end of 2026.

Technical Outlook: EUR/USD Neutral Following Standoff Around 1.1400

The EUR/USD exchange rate recently found some support if the 100-day Simple Moving Average (SMA) at 1.1361 held at the 1.1400 level. Buyers entered around that point, preventing further declines just above 1.1401. The relative strength index (RSI) suggests sellers are currently in control but may be consolidating after dipping to 34.60, with the RSI now rising to 34.70. Still, there are indications of more potential downward movement for the pair.

If the EUR/USD slips below 1.1400, the next significant test would be the 100-day SMA and a level around 1.1300. On the flip side, if it climbs beyond 1.1500, the 50-day SMA at 1.1572 comes into play.