EUR/USD Pauses Above 1.1600s as Traders Wait for US PCE Data and Fed Signals

The EUR/USD pair has been struggling to capitalize on its recent bounce from last week's low, and is trading with a negative bias in early European session on Wednesday. Despite this, spot prices remain above mid-1.1600s and are within striking distance of the highest level since May 14.

Traders are waiting for cues about the US Federal Reserve's (Fed) interest rate path, which will play a key role in influencing near-term USD price dynamics. The release of the US Personal Consumption Expenditures (PCE) Price Index later today and Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday will be closely watched.

The Fed's policy outlook is expected to influence the EUR/USD pair, with expectations shifting towards a policy hold at the September 15-16 FOMC meeting amid signs of cooling US price pressures and a sluggish labor market. In contrast, European Central Bank (ECB) policymakers are ready to raise interest rates at their next meeting in September to contain the side effects of the Iran war.

The divergent Fed-ECB outlooks continue to lend support to the EUR/USD pair, while the US Treasury's buyback strategy and easing inflationary fears due to a fall in crude oil prices have led to a decline in US bond yields. This has kept a lid on further gains for the safe-haven Greenback.

The technical analysis shows that the EUR/USD pair holds above the 61.8% Fibonacci retracement level of the April-June decline and seems poised to extend its advance above the long-term 200-day Simple Moving Average (SMA).