EUR/USD nears 1.1100 on strong Fed rate cut prospects

• EUR/USD rises as growing bets on a big Federal Reserve cut weigh on the US dollar.
• The ECB said it remains data-dependent for further monetary policy action after Thursday’s cut.
• ECB President Lagarde refrained from offering a specific path to interest rate cuts.

EUR/USD reaches near 1.1100 in the European session on Friday. The major currency pair gains as the euro (EUR) strengthens following the European Central Bank’s (ECB) monetary policy announcement on Thursday and the US dollar (USD) weakens after weak US producer price index (PPI) data ( USA) for the month of August. . The ECB cuts its deposit rate by 25 basis points (bps) to 3.50%, as widely expected.

The central bank was already widely expected to cut its key lending rates as the euro zone’s economic outlook appears to have shaken amid a weak demand environment and price pressures on the old continent continue to decelerate.

The outlook for the euro improved due to the absence of a predefined interest rate cut path in ECB President Christine Lagarde’s monetary policy statement and press conference. Lagarde’s comments indicated that the central bank will follow a data-driven approach, saying that “interest rate decisions will be based on an assessment of the outlook for inflation in light of incoming economic and financial data, underlying inflation dynamics and the strength of monetary policy. transmission”, at the press conference.

For the rest of the year, market participants see the ECB cutting interest rates once more as price pressures are expected to ease further. At the end of the Asian session, ECB decision-makers Joachin Nagel told German station Deutschlandfunk: “We assume that core inflation will improve, especially with the downward trend in wages in the euro area.”

In terms of economic data, industrial production in the euro zone fell by 2.2% year-on-year (year-on-year) in July, Eurostat reported on Friday. The number was better than the -2.7% expected and -4.1% (revised from -3.9%) seen in June. On a monthly basis, industrial production fell by 0.3%, in line with expectations.

Daily market reasons: EUR/USD gains as US dollar slips further

• EUR/USD strengthens against a weak US dollar. The US Dollar Index (DXY), which tracks the greenback against six major currencies, is extending its decline to near 101.00. The greenback is facing strong selling pressure as market speculation for the Federal Reserve (Fed) to cut interest rates by 50 basis points (bps) on Wednesday grows.
• According to the CME FedWatch tool, the likelihood that the Fed will cut interest rates by 50 basis points (bps) to 4.75%-5.00% in September rose sharply to 43% from 14% after the release of US PPI data.
• PPI data on Thursday showed that producer inflation rose at a slower-than-expected year-on-year pace in August. Headline inflation rose 1.7%, slower than estimates of 1.8% and from 2.1% in July, revised down from 2.2%. Over the same period, core producer inflation – which excludes volatile food and energy prices – rose steadily at 2.4%, slower than expectations of 2.5%.
• A slower pace in factory-gate price increases for goods and services suggests a sluggish trend in consumer spending, which historically drives Federal Reserve (Fed) rate cut bets.
• Next, investors will focus on preliminary Michigan consumer sentiment data for September due at 14:00 GMT. Sentiment data is estimated to have remained almost flat at 68.0 from the previous release of 67.9.

Technical Analysis: EUR/USD rebounds strongly from 1.1000

EUR/USD is surging after retesting the breakout of the Rising Channel chart formed on a daily time frame near the psychological support of 1.1000. The major currency pair’s short-term outlook strengthened as it climbed above the 20-day exponential moving average (EMA), which is trading around 1.1055.

The 14-day Relative Strength Index (RSI) is hovering in the 40.00-60.00 range. A bullish push would be triggered after the break above 60.00.

Looking to the upside, last week’s high of 1.1155 and round-level resistance at 1.1200 will act as major roadblocks for Euro bulls. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support areas.