empty
14.08.2024 12:18 AM
Euro on the Offensive

Much ado about nothing. In anticipation of the release of the US Producer Price Index, there were many speculations about a strong market reaction to inflation surprises. In reality, the unexpected slowdown in the PPI resulted in a modest attempt by EUR/USD to break out of the short-term consolidation range of 1.088–1.094. The bulls didn't achieve significant gains on their first attempt. Should they wait until Wednesday for the CPI data to be released?

In July, producer prices slowed to 0.1% month-over-month and 2.2% year-over-year. The core PPI remained unchanged compared to June and increased by 2.3% over 12 months. The significant aspect is the first reduction in service inflation in a long time. The figures suggest a developing disinflationary process in the US and provide the basis for the futures market to increase the probability of a 50 bps rate cut by the Federal Reserve in September from 49% to 54%.

The futures market still believes that the Fed will cut borrowing costs by 100 bps in 2024, which implies activity at each of the three remaining FOMC meetings this year. In 12–18 months, the rate is expected to fall to 3%, a clear bullish signal for EUR/USD.

Market Expectations for the Federal Funds Rate

This image is no longer relevant

Goldman Sachs considers such forecasts overstated and views the market reaction to the US employment data for July as excessive. In reality, there is no talk of a recession in the US. The American economy appears weaker than before, but GDP can still grow above trend. This performance allows the Fed to avoid rushing into easing monetary policy. As soon as the market realizes it, the story of early 2024 with the strengthening of the U.S. dollar will repeat itself. In this regard, Goldman Sachs recommends selling EUR/USD.

This strategy is supported by the decline in investor confidence in the German economy in August to its lowest level since January amid turmoil in global financial markets. As a pro-cyclical currency, the euro reacts strongly to deteriorating global economic conditions. If the US, China, Japan, and Germany face trouble, EUR/USD will likely head south.

Dynamics of Investor Confidence in the German Economy

This image is no longer relevant

This image is no longer relevant

However, the release of the data on the US Consumer Price Index will answer all the questions. This opinion is present on Forex, but, as with the PPI, it may be much ado about nothing. Investors gradually shift their focus from inflation to recession, so the market reaction might be muted. We'll wait and see.

Technically, on the EUR/USD daily chart, the bulls' failure to break the resistance at the pivot level of 1.0945 indicates weakness among the bulls. However, a second attempt might be more successful, so a re-entry into long positions after successfully testing the upper boundary of the 1.0880-1.0940 consolidation range is worth considering.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

The ECB May Cut Interest Rates Twice

The euro is showing a sharp rally against the U.S. dollar. The EUR/USD pair has already reached a three-year high and shows no signs of slowing down. Meanwhile, according

Jakub Novak 12:42 2025-04-11 UTC+2

AUD/USD. Analysis and Forecast

The AUD/USD pair is attempting to attract buyers in its rebound from the psychological level of 0.5900, marking its lowest point since March 2020. The upward momentum has managed

Irina Yanina 12:39 2025-04-11 UTC+2

Markets Face a Prolonged Period of Instability (USD/JPY and USD/CHF Likely to Continue Falling)

On Thursday, investors realized there is currently no such thing as stability. High market volatility remains and will continue to dominate for some time. The ongoing cause of this remains

Pati Gani 09:11 2025-04-11 UTC+2

The Market Has Grown Used to Chaos

What is life if not a game? In past years, investors focused on the standoff between the Federal Reserve and financial markets. But in 2025, the rules of the game

Marek Petkovich 08:42 2025-04-11 UTC+2

What to Pay Attention to on April 11? A Breakdown of Fundamental Events for Beginners

A relatively large number of macroeconomic events are scheduled for Friday, but none are expected to impact the market. Of course, we may see short-term reactions to individual reports

Paolo Greco 06:04 2025-04-11 UTC+2

GBP/USD Overview. April 11: The Market Didn't Believe Trump

The GBP/USD currency pair also traded higher on Thursday. As a reminder, macroeconomic and traditional fundamental factors currently have little to no influence on currency movements. The only thing that

Paolo Greco 03:28 2025-04-11 UTC+2

EUR/USD Overview. April 11: The American Comedy Continues

The EUR/USD currency pair declined sharply overnight on Wednesday but showed some recovery during the day. On Thursday, there was further growth—this series of fluctuations can only be described

Paolo Greco 03:28 2025-04-11 UTC+2

Trading Recommendations and Analysis for GBP/USD on April 11: The Dollar Takes a Double Hit

The GBP/USD currency pair also showed strong growth on Thursday, although not as strong as the EUR/USD pair. The pound gained only around 200 pips—which isn't a considerable move under

Paolo Greco 03:28 2025-04-11 UTC+2

EUR/USD. A Message from the Past: U.S. CPI Report Fails to Support the Dollar

The CPI report released on Thursday showed weaker-than-expected inflation. The market responded accordingly: the U.S. dollar came under renewed pressure (the U.S. Dollar Index fell into the 100.00 range)

Irina Manzenko 00:47 2025-04-11 UTC+2

The Euro Charges Ahead. Opponents Retreat

A rally in European stock indices, slowing U.S. inflation, and the fact that the average U.S. tariff has not changed significantly despite the 90-day deferral all contributed to the rise

Marek Petkovich 00:47 2025-04-11 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.