Euro flatlines above 1.1500 as traders turn cautious ahead of US NFP data
- EUR/USD trades flat near 1.1505 in Tuesday’s early European session.
- Hot Eurozone inflation report adds to an already strong case for another ECB rate hike.
- Traders await the US July employment data on Friday for fresh impetus.
The EUR/USD pair holds steady around 1.1505 during the early European trading hours on Tuesday. Markets remain cautious ahead of the crucial US July jobs report, which is due later this week.
Eurozone inflation ticked up in July, bolstering the case for a rate hike from the European Central Bank (ECB). The headline Eurozone inflation rose to 2.9% YoY in July from 2.8% in June, in line with expectations, Eurostat data showed last week. Meanwhile, the core Eurozone inflation accelerated to 2.5% YoY in July versus 2.4% prior, above the consensus of 2.4%.
Financial markets are betting on more than two ECB rate hikes, with moves fully priced in by October and April, according to Reuters.
The US employment data will be the highlight later on Friday, which could offer some hints about the health of the labour market and US interest rate path. Economists expect Nonfarm Payrolls (NFP) to increase by 83,000 in July, while the Unemployment Rate is projected to rise to 4.3% during the same period. In case of stronger-than-expected outcomes, this could lift the Greenback in the near term.
Markets have priced in nearly a 64.7% chance of a US rate hike in September, down from about 77% before the July Fed meeting, according to the CME FedWatch tool.
Fed decision seen as key driver for EUR/USD direction into September
Strategists at ING emphasise that the path for EUR/USD in the coming weeks hinges largely on the Federal Reserve. They argue that “the bigger and more lasting driver of the EUR/USD trend will be the Fed's September decision,” which “remains unresolved,” leaving this week’s US data as a crucial catalyst. ING notes that the incoming figures will “have a big say if we end the week pressing 1.1615/20 resistance or trading back below 1.15,” underscoring how sensitive the pair remains to shifts in Fed expectations.
Technical Analysis: EUR/USD remains capped below the key 100-day SMA
In the daily chart, EUR/USD retains a bearish near-term bias as spot remains capped beneath the 100-day Simple Moving Average (SMA). Price holds above the 20-day Bollinger SMA, but proximity to the upper Bollinger band suggests upside attempts are constrained within a tightening volatility envelope. The Relative Strength Index (14) at 58.9 stays below overbought territory, hinting at fading bullish momentum rather than a decisive trend reversal.
On the topside, immediate resistance aligns with the upper Bollinger band near 1.1535, ahead of the more significant 100-day SMA barrier at 1.1570, which continues to define the broader bearish cap on the pair. On the downside, initial support emerges at the current price pivot zone around 1.1510, followed by the mid-Bollinger baseline at 1.1435, while a deeper slide would expose the lower Bollinger band support near 1.1335.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
