EUR/USD Hinges on US CPI and 1.1680 Resistance Level Amidst Hawkish Central Banks
The EUR/USD pair has been trading at 1.15403, down 0.03% from Tuesday's session. Despite clearing the resistance band of 1.1516 to 1.1535, the technical move is seen as a correction within a medium-term downtrend rather than a reversal.
The Federal Reserve and European Central Bank (ECB) are both leaning hawkish, but neither is delivering the divergence signal that typically drives trend moves in the pair. The structural problem for EUR/USD is the lack of a trade driving it, as the Fed holds at 3.50%-3.75% and the ECB raised its key rates by 25 basis points.
The calendar remains focused on US CPI and the ECB Governing Council meeting on September 10. The Bureau of Labor Statistics will release July US CPI on August 12, with headline expected to ease from 3.5% to 3.4%. Meanwhile, euro area annual inflation reached 2.9% in July, driven by energy prices.
The break above the 1.1516 to 1.1535 band has created a support level, but the pair's ability to hold at 1.15403 is seen as the first constructive signal since the June decline. The key resistance level remains at 1.1680, which would shift the structure from corrective to constructive.
The policy gap between the Fed and ECB remains a crucial factor, with the dollar holding a 137.5-basis-point advantage at the mid-point of the Fed's range. However, if the ECB delivers 25 basis points on September 10 and the Fed holds on September 16, the gap would narrow to 112.5 basis points.