

Market Analysis
Economists anticipate only a modest increase in the monthly headline Producer Price Index (PPI) for last month. The core PPI, which excludes the volatile food and energy sectors, is projected to grow at a slower rate of 0.2%, down from the 0.4% increase seen in June. Annual figures for both headline and core PPI are expected to decelerate by three-tenths to 2.3% and 2.7%, respectively.
The impact of the US PPI data on the US Dollar (USD) is expected to be minimal unless the results significantly deviate from forecasts. The main focus will shift to the Consumer Price Index (CPI) data for July, scheduled for release on Wednesday. This inflation data will play a crucial role in shaping market expectations regarding the Federal Reserve's (Fed) interest rate decisions for the remainder of the year.
Market Overview: EUR/USD Stabilizes Ahead of US PPI Release
The EUR/USD pair has shown limited movement as the US Dollar gains ground, with investors awaiting the July US CPI inflation data. The US Dollar Index (DXY), which measures the Greenback's performance against six major currencies, remains steady above 103.00.
Annual headline and core inflation are anticipated to have slowed slightly to 2.9% and 3.2%, respectively, with monthly increases expected to be 0.2%. This data will provide insights into whether the Fed will adopt a cautious approach to policy easing or pursue more aggressive rate cuts.
The CME FedWatch tool indicates a 47.5% probability of a 50 basis point (bps) rate cut in September. This likelihood has decreased from the 68% probability observed a week earlier.
Meanwhile, the Euro (EUR) is influenced by speculation regarding potential rate cuts by the European Central Bank (ECB) in the absence of significant Eurozone economic data. Investors will be watching the German and Eurozone ZEW survey data for August, set to be released at 09:00 GMT.
There is uncertainty regarding the ECB's monetary policy, with opinions divided on whether the bank will implement aggressive rate cuts or opt for a more measured approach.
Although the Eurozone economy grew faster than expected in the second quarter, Germany—the largest economy in the region—faces weak demand both domestically and from abroad. Germany's GDP contracted by 0.1% in the second quarter.
Finnish ECB policymaker Olli Rehn recently stated that “rate cuts would help the eurozone economy recover, particularly by supporting fragile industrial growth and subdued investments,” according to Reuters.
Technical Analysis: EUR/USD Tests Key 200-Day EMA
The EUR/USD pair is trading near the upper boundary of its Channel formation on the daily chart. A breakout from this pattern could lead to larger price movements and increased trading volume. The 200-day Exponential Moving Average (EMA) around 1.0800 has served as a significant support level for the Euro.
The 14-day Relative Strength Index (RSI) is within the 40.00-60.00 range, approaching its upper limit. If the RSI remains above 60.00, it may signal bullish momentum.
A further rise is possible if the currency pair breaks above the August 5 high of 1.1009, potentially pushing it toward the August 10, 2023, high of 1.1065, followed by the resistance level at 1.1100.
Conversely, a decline below the August 1 low of 1.0777 could push the pair toward the February low near 1.0700. A breakdown below this level would expose it to the June 14 low of 1.0667.
Paraphrasing text from "FX Street" all rights reserved by the original author.