08/10/24

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The EUR/USD currency pair is experiencing a mild recovery, approaching the psychological level of 1.1000 as the US Dollar’s recent rally loses momentum. This shift occurs as investors turn their attention to the upcoming Consumer Price Index (CPI) data from the United States, set to be released on Thursday. The market anticipates that the annual core CPI, which excludes the more volatile food and energy sectors, will show a consistent growth rate of 3.2% year-over-year. In contrast, the headline inflation rate is predicted to decline to 2.3% from 2.5% observed in August.

The implications of these inflation figures on the Federal Reserve’s interest rate trajectory may be minimal. Current sentiment among policymakers leans toward fostering economic growth and boosting consumer spending rather than reacting aggressively to inflation metrics. Recent comments from a Fed governor indicate readiness for further rate cuts if price pressures continue to ease.

Looking ahead, many financial analysts predict that the Federal Reserve will implement a rate cut of 25 basis points in November, with speculation for a more significant cut of 50 basis points diminishing following a robust US job report. This report underscored strong labor demand and exceeded expectations for wage growth, contributing to the cautious outlook.

In Europe, the Euro faces a fragile position as discussions within the European Central Bank (ECB) suggest openness to additional rate cuts. ECB officials have noted the necessity to adjust interest rates in response to diminishing price pressures and sluggish economic growth in the Eurozone. Notably, recent data showed a significant rebound in German industrial production for August, growing 2.9% month-over-month, surpassing forecasts.

Despite the positive production figures, some ECB policymakers urge restraint in considering further rate cuts, highlighting that inflation remains a concern. As of September, the Eurozone’s inflation index decreased to 1.8% year-over-year, indicating the complexities of the current economic landscape.

From a technical perspective, EUR/USD remains under pressure, struggling against strong resistance near 1.1000. It exhibits a breakdown from a previously identified Double Top pattern. The 14-day Relative Strength Index (RSI) also suggests potential bearish momentum, particularly if the index remains below the key level of 40. Potential support is anticipated at the 200-day Exponential Moving Average around 1.0900, while significant resistance can be found near the 20-day EMA at 1.1070 and the September high around 1.1200.