Mon, Feb 10, 2025

EUR/USD Remains Steady Above 1.0900 as Market Awaits US Inflation News
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EURUSD is moving in box pattern and market has fallen from the resistance area of the pattern

EUR/USD Holds Steady as Investors Await Crucial US Inflation Data

The EUR/USD currency pair has been holding its ground above the key 1.0900 level, attracting the attention of traders and investors alike. With market participants eagerly awaiting fresh economic data, particularly from the United States, there’s a palpable sense of anticipation in the air. Let’s dive into what’s going on with the EUR/USD, why this week’s data matters so much, and what it could mean for the broader economy.

US Inflation: The Market’s Main Focus

The spotlight this week is squarely on the upcoming US Consumer Price Index (CPI) data, which is set to be released on Wednesday. This particular set of data is more than just a number; it’s a crucial indicator of inflation trends in the US economy. The Federal Reserve (Fed) keeps a close eye on inflation as it plays a significant role in shaping their monetary policy decisions, particularly regarding interest rates.

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What Economists Are Expecting

Economists are predicting that both the headline and core inflation rates will show a slight deceleration for July. Specifically, the annual headline CPI is expected to ease to around 2.9%, down by a tenth of a percent, while the core CPI, which excludes volatile items like food and energy, is forecasted to drop slightly to 3.2%. These figures are particularly important because they give insight into whether inflationary pressures are easing, which in turn impacts the Fed’s decisions on interest rates.

The Fed’s Next Move

There’s widespread speculation that the Federal Reserve may begin reducing interest rates as early as September. The reasoning behind this is that the Fed might now feel confident that inflation is heading back toward its target rate of 2%. Additionally, there are emerging concerns about potential downside risks to the labor market, which could also influence the Fed’s decision-making process.

According to the CME FedWatch tool, which gauges market expectations for future Fed actions, there’s currently a 46.5% chance that the Fed will cut interest rates by 50 basis points in September. This is a significant shift from last week when the likelihood was at 85%. This change in sentiment suggests that market participants are becoming less convinced that aggressive rate cuts are on the horizon, possibly due to a diminished fear of a US recession.

Economic Data’s Role in Shaping Fed Decisions

It’s important to note that the Federal Reserve has made it clear that their decisions on rate cuts will be heavily influenced by economic data, rather than the recent fluctuations in the stock market. This means that the upcoming inflation data, along with other key economic indicators, will be crucial in determining the Fed’s next steps.

Eurozone Economic Updates: What to Watch

While the focus is on the US, it’s also worth paying attention to some key economic data coming out of the Eurozone this week. On Wednesday, the Eurozone will release revised estimates for its second-quarter Gross Domestic Product (GDP) and preliminary Employment Change figures. These data points are critical for understanding the current state of the Eurozone economy and could have implications for the European Central Bank’s (ECB) policy decisions.

EURUSD is moving in Ascending channel and market has fallen from the higher high area of the channel

EURUSD is moving in Ascending channel and market has fallen from the higher high area of the channel

GDP and Employment Expectations

Economists are expecting the Eurozone’s economy to have grown by 0.3% in the second quarter, which is in line with the preliminary figures and mirrors the growth seen in the first quarter of this year. Additionally, the Employment Change data, which reflects the percentage increase in new payrolls, is anticipated to show a slight slowdown, with an expected rise of 0.2%, down from 0.3% in the previous release.

These figures are particularly significant for the Euro (EUR) because strong GDP and employment numbers reduce the likelihood of further policy easing by the ECB. The ECB has already shifted its focus towards policy normalization, and investors are keen to see how far the central bank will go in terms of adjusting its key borrowing rates.

ECB’s Outlook: Rate Cuts on the Horizon?

The European Central Bank has been in the spotlight recently, with many speculating about its future policy direction. Last week, Finnish ECB policymaker Olli Rehn made headlines by suggesting that further rate cuts could be beneficial for the Eurozone’s economy, particularly in supporting fragile industrial growth and boosting subdued investments. This has led to increased expectations that the ECB may deliver two more interest-rate cuts before the year’s end.

However, the market is still divided on this issue, with some analysts arguing that the ECB might adopt a more cautious approach depending on how the economic data unfolds in the coming months. The revised GDP and Employment Change figures due this week will be crucial in shaping these expectations.

Final Thoughts: What Lies Ahead for EUR/USD?

As we move further into the week, all eyes will be on the US inflation data and its potential impact on the Federal Reserve’s monetary policy. The EUR/USD pair’s ability to hold above the 1.0900 level suggests that there is still some underlying strength in the Euro, but this could quickly change depending on how the economic data plays out.

half the battle won.

For traders and investors, the key takeaway is to stay vigilant and keep an eye on the upcoming data releases. Whether the Fed decides to cut rates in September or hold off for a bit longer, the decisions made in the coming weeks will likely have a significant impact on the EUR/USD pair and the broader financial markets.

So, as we wait for the data to roll in, it’s a good idea to stay informed and be ready to adjust your trading strategies accordingly. After all, in the world of forex, being prepared is half the battle won.


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