FOMC minutes and EU growth data under review

• Weaker-than-expected US inflation numbers boosted market sentiment.
• European growth figures to indicate that the Union is not out of the woods yet.
• EUR/USD is poised to extend its gains beyond the 1.1100 mark.

EUR/USD climbed to 1.1046 this week, beating the annual open by a few pips and setting a new high since 2024. Momentum faded and the US dollar managed to recover some ground, however, as the weekend approaches , the pair is trading with solid gains around 1.1000.

What happened?

Optimism gripped financial markets and undermined demand for the USD following the release of weaker-than-expected United States (US) inflation figures. EUR/USD rose about 90 pips from Tuesday’s daily low as the US producer price index (PPI) rose a less-than-expected 2.2% in July from a year ago and by 0.1% per month. The readings were also below June results. Finally, the core annual PPI rose 2.4%, below the previous 3% and below the expected level of 2.7%. The US dollar fell sharply on growing bets that easing inflationary pressures will allow the Federal Reserve (Fed) to kick-start its easing cycle when it meets in September.

EUR/USD rose to its 2024 high on Wednesday following the release of the US Consumer Price Index (CPI). The index rose 2.9% annually in July, down from 3% in June. The annual core figure was printed at 3.2%, slightly below 3.3% previously, though in line with expectations. Finally, CPI rose 0.2% on a monthly basis, in line with expectations.

Enthusiasm over the upcoming rate cut was short-lived, however, as the USD pared most of its losses on the day, despite solid momentum in global equities reflecting prevailing risk appetite. As stocks continued to rise, USD gains were held in check. At the end of the day, the inflation data barely affected the chances of a Fed rate cut. What markets are still uncertain about is whether the central bank will offer a 25 or 50 basis point (bps) cut. At the moment, that seems more related to economic growth than the level of inflation.

Despite still being above the Fed’s target of around 2%, inflation has continued to decline. Economic progress, on the other hand, has been bumpy but generally encouraging. Indeed, some warm numbers revived recession worries in early August. Such fears appear to have cooled, and with the September meeting around the corner, speculative interest has abandoned the idea of ​​an off-schedule rate cut.

And what about Europe?

The European Central Bank (ECB) has already cut interest rates, cutting the three major banks’ rates by 25 basis points (bps) each. The ECB is expected to repeat the move in September and December amid stubbornly high inflation. But European policymakers also face the risk of a recession. And the signs have been much more evident than in the US in the last year or so.

EU data released this week did not impress. Germany released the ZEW Economic Sentiment Survey, with the index falling sharply in the country and the EU. Moreover, the assessment of the current situation has worsened more than anticipated.

The EU also released its second estimate of Q2 Gross Domestic Product (GDP), which converged with the initial estimate, posting a modest advance of 0.3% in the three months to June. Meanwhile, industrial production fell 0.1 percent month-on-month in June and fell 3.9 percent from a year earlier in June.

What’s next for EUR/USD?

On the data front, next week will bring the release of the minutes of the Federal Open Market Committee (FOMC) meeting. The document is usually issued three weeks after the meeting takes place. Back then, the wording of the accompanying statement showed that US officials are more willing to cut interest rates. Chairman Jerome Powell noted that “inflation readings in the second quarter boosted our confidence, and more good data would further strengthen that confidence.” In addition, policy makers appeared less concerned about inflationary pressures, saying that “inflation has eased over the past year but remains somewhat elevated” from the “increase” in the previous statement. For the most part, market participants saw officials paving the way for an interest rate cut in September.

In addition, Hamburg Commercial Bank (HCOB) and S&P Global will publish preliminary estimates of August Purchasing Managers’ Indices (PMIs) for most major economies. Finally, the Jackson Hole Economic Symposium, an event that hosts policymakers, academics and economists from around the world, will begin on Friday. Fed Chairman Powell will deliver remarks on the economic outlook on the first day of the symposium.

In addition, the eurozone will publish the final estimate of the harmonized index of consumer prices (HICP) in July.

EUR/USD Technical Outlook

Technically, EUR/USD is poised to extend gains. On the weekly chart, technical indicators appeared in positive levels, albeit with uneven momentum. At the same time, the pair further extended its lead above the 20 and 100 simple moving averages (SMA) and is approaching a slightly bearish SMA of 200, providing dynamic resistance at 1.1070. Once past the levels, bulls will likely feel more comfortable adding long positions.

The daily chart for the EUR/USD pair shows technical indicators correcting overbought conditions before resuming their advances, supporting continued gains. At the same time, the 20 SMA continues to accelerate north below the current level, while it sits above the 100 and 200 SMA, further supporting the bullish case. Once above 1.1070, the bulls will try to test a strong static resistance area around 1.1140. Gains beyond the latter should lead to an advance towards the 1.1200 figure.

In case of a pullback, 1.0950 is the immediate support level ahead of the 1.0890 price area. Below the latter, the pair should move lower towards the 1.0800 region.