One currency pair that’s been particularly volatile lately is the EUR/USD currency pair. Its currency value dropped below the 1.1700 level during early trading but soon snapped back up above it. This movement came at the same time as the release of very strong economic data. The US Consumer Price Index (CPI) and a reading on the Fed’s monetary policy made the short list. The EUR/USD is unfortunately still charting a tricky path. It now contends with opposing signals from technical indicators and economic predictions.
As market participants absorbed the implications of the latest economic reports, the EUR/USD pair fell, briefly piercing a flat 100 Simple Moving Average (SMA) around 1.1670. After the drop, the pair’s price has held relatively steady just above the resistance mark. It’s now in a battle to defend its turf at 1.1700, trading flat on the day. As the currency pair swings wildly from high to low, some critical questions arise concerning where it will head next. This uncertainty is compounded as the market has literally baked in the expectation of three Federal Reserve cuts by the end of 2025.
The latest numbers from the US CPI have served to throw a spanner into the works – injecting an element of confusion into the market’s expectations. That’s why the core annual reading came in a tad lower, at 3.1%, as expected. At the same time, the total annual CPI rose to 2.9% in August, up from 2.7% in July. On a seasonally adjusted basis, inflation was up 0.4% on the month, a sharp acceleration from the relatively low 0.2% increase seen in July. All together these figures paint a picture of a moderating, although persistent, inflationary trend that may shape the Federal Reserve’s policy path in the coming months.
From a technical perspective, the EUR/USD has been forming under a slightly bearish 20-SMA. Opposition is seen at this 1.1720 area. That spells trouble for any positive movement the duo seeks to develop. On the flip side, we see support at 1.1670, 1.1630 and 1.1590. If the pair experiences more downside pressure, these levels may provide a cushion.
The 100 simple moving average for EUR/USD is moving to the upside. Yet, it’s running out of steam, a sign that bullish enthusiasm is running dry. Technical indicators are equally lost at sea with their direction and trapped in bearish territory. This decline is alarming enough, but the prospect of even greater losses makes it all the more troubling. The downside is now seen as the greater risk for the EUR/USD, analysts warn in view of the past few weeks’ economic events.
Market participants are watching these dynamics very closely. Specifically, movers should watch for key resistance points at 1.1720, 1.1770, and 1.1825 later this week and beyond. If conditions improve dramatically or worsen in reaction to new, critical economic data starting with inflation tomorrow or from the FOMC, we could get these levels tested. Or, they could be made more stringent.