The EUR/USD edged higher towards 1.0830 during Tuesday’s European session, driven by stronger-than-expected Eurozone GDP data for Q2. The Eurozone’s economy expanded by 0.3%, surpassing investor expectations of 0.2%. On an annualized basis, GDP rose by 0.6%, consistent with forecasts and up from the previous 0.4%, enhancing the Eurozone’s economic outlook and bolstering the Euro.
Conversely, Germany’s Q2 GDP unexpectedly contracted by 0.1%, falling short of the anticipated growth. This followed a 0.2% growth in the previous quarter. Annualized GDP also declined by 0.1%, contrary to expectations of no change. In response, German Finance Minister Christian Lindner announced tax relief measures to stimulate spending and investment amid concerns over weak demand.
Further developments are expected as the preliminary German Harmonized Index of Consumer Prices (HICP) for July is set for release at 12:00 GMT today. The key event for the Euro this week will be the preliminary Eurozone HICP for July, scheduled for Wednesday. This inflation data will influence market speculation on whether the European Central Bank (ECB) will proceed with further interest rate cuts this year. The ECB began easing its policy in June but paused in July, wary of reigniting inflation. Headline and core HICP are projected to decelerate to 2.4% and 2.8% annually, respectively.
EUR/USD Gains as US Dollar Weakens Ahead of Fed Decision
The EUR/USD advanced as the US Dollar (USD) lost intraday gains, reflecting market uncertainty ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The US Dollar Index (DXY), which measures the Greenback against six major currencies, remained flat around 104.60.
The Fed is expected to maintain interest rates in the range of 5.25%-5.50% for the eighth consecutive meeting. This decision is anticipated to be the last steady rate hold, with policy normalization likely to begin in September. According to the CME FedWatch tool, market data predicts a 25 basis points (bps) rate cut in September, with two additional cuts by year-end, contrasting with the Fed’s recent projections.
Market analysts expect the Fed to acknowledge progress towards its 2% inflation target and recognize ongoing labor market strength, signaling readiness to unwind over two years of policy tightening.
Investors will also monitor key economic data this week. On Tuesday, attention will turn to the JOLTS Job Openings data for June, due at 14:00 GMT, with estimates suggesting a decline to 8.03 million from 8.14 million in the previous release.
Technical Analysis: EUR/USD Maintains Support Above 1.0800
The EUR/USD holds within Monday’s trading range, maintaining crucial support at 1.0800. The pair remains in a Symmetrical Triangle pattern on the daily chart after failing to sustain a breakout. It is positioned below the 20-day Exponential Moving Average (EMA), currently around 1.0840.
A potential decline could see the pair testing support levels near 1.0800 and 1.0700. On the upside, the resistance at 1.0900 poses a significant challenge for Euro bulls.
The 14-day Relative Strength Index (RSI) has returned to the 40.00-60.00 range, indicating diminished bullish momentum.
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