EUR/USD falls, US dollar rises, with Fed policy in focus

The EUR/USD pair falls and the US dollar rises after hopeful JOLTS data on US job vacancies.
Eurozone GDP grew steadily by 0.3% in the second quarter
The Federal Reserve is expected to openly support interest rate cuts in September.

EUR/USD is slightly down to nearly 1.0800 in New York on Tuesday. The main currency pair is down despite better-than-expected gross domestic product (GDP) data for the eurozone for Q2. The report showed that the aged continent expanded steadily by 0.3%. Investors had expected the economy to grow at a slower pace of 0.2%. Annual GDP rose by 0.6%, in line with expectations and faster than the previous publication of 0.4%. This improved the eurozone’s economic outlook and the euro’s attractiveness.

On the contrary, preliminary German GDP in the second quarter unexpectedly contracted by 0.1%, while economists had forecast an expansion at a similar pace. In the previous quarter, the eurozone’s largest economy grew by 0.2%. Annual GDP shrank by 0.1%, although it was expected to remain unchanged. The German administration is already worried about the delicate demand environment. That is why German Finance Minister Christian Lindner announced a tax break for companies and households to stimulate spending and investment.

Meanwhile, Germany’s preliminary Harmonized Index of Consumer Prices (HICP) for July came in hotter than expected. The monthly HICP rose a powerful 0.5% from estimates and the previous reading of 0.2%. The annual HICP unexpectedly accelerated to 2.6% from the previous reading of 2.5%. Economists had forecast a slowdown to 2.4%.

The euro’s main trigger this week will be the euro zone’s preliminary HICP for July, due on Wednesday. Inflation data will indicate whether current market speculation that the European Central Bank (ECB) will cut its key interest rates twice more this year is correct. The ECB initiated a cycle of easing in June but did not cut rates sequentially in July, as policymakers fear an aggressive expansionary stance could raise price pressures again. The headline and core HICP, which exclude volatile items such as food, energy, alcohol and tobacco, are estimated to have slowed to 2.4% and 2.8% year-on-year, respectively.

Daily Market Factors Review: EUR/USD Falls, US Dollar Rise on Upbeat US Shock Jobs

EUR/USD is down in North American trading on Tuesday as the US dollar (USD) rises after better-than-expected JOLTS Job Openings data for June. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to nearly 104.80. The data showed that recent job openings rose to 8.18 million, compared with expectations of 8.03 million, but was lower than the previous release of 8.23 million, revised down from 8.14 million.
Meanwhile, the main factor affecting the US dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday and a slew of economic data released this week,
The Fed is expected to leave interest rates unchanged in a range of 5.25%-5.50% for an eighth consecutive meeting. This is expected to be the last eternal rate decision, and the Fed will move to normalize policy starting at its September meeting.
According to the CME FedWatch tool, 30-day price data for federal funds futures shows the central bank will cut interest rates by 25 basis points (bps) from current levels at its September meeting. The data also shows there will be two rate cuts before the end of the year, not one as Fed policymakers had forecast in the latest Fed dot plot.
Market experts believe the Fed is seeing inflation returning to a path toward the bank’s 2% target, as well as some progress, along with risks to rising labor market strength. That would signal a willingness for the Fed to exit more than two years of tightening policy.

Technical Analysis: EUR/USD Falls to Near 1.0800

EUR/USD is trading within Monday’s trading range and holding key support at 1.0800. The common currency pair is staying inside a symmetrical triangle pattern on the daily time frame chart after failing to sustain a breakout. The major currency pair is settling below the 20-day exponential moving average (EMA), which is trading around 1.0840.

The rate may continue to decline towards the round supports around 1.0800 and 1.0700. On the other hand, the resistance at the round level of 1.0900 will be a key barrier for the bulls in the euro market.

The 14-day Relative Strength Index (RSI) is trading in the 40.00-60.00 range, which indicates that the upside momentum has faded.