The EUR/USD currency pair remained stable around 1.1505 during early European trading hours on Tuesday, as market participants adopted a cautious stance ahead of the upcoming US July Nonfarm Payrolls (NFP) report, which is scheduled for release later this week [1]. The Eurozone's headline inflation rate increased to 2.9% year-over-year in July from 2.8% in June, matching expectations, while core inflation accelerated to 2.5% from 2.4%, slightly above the consensus forecast of 2.4%, according to Eurostat data [1]. These inflation figures have reinforced expectations for further interest rate hikes by the European Central Bank (ECB), with financial markets fully pricing in more than two ECB rate hikes by October and April, as reported by Reuters [1].
Attention is now focused on the US labor market, with economists projecting an 83,000 increase in July NFP and a rise in the unemployment rate to 4.3% [1]. Stronger-than-expected US employment data could provide near-term support for the US dollar, potentially impacting the EUR/USD pair [1]. Market pricing for a US Federal Reserve rate hike in September has declined to approximately 64.7%, down from about 77% before the July Fed meeting, based on the CME FedWatch tool [1].
Strategists at ING highlight that the Federal Reserve's September decision will be a key determinant for the EUR/USD trajectory in the coming weeks. They note that the outcome of this week's US data will be crucial, potentially driving the pair towards resistance at 1.1615/20 or back below 1.15, reflecting the pair's sensitivity to shifts in Fed expectations [1].
From a technical perspective, EUR/USD maintains a bearish near-term bias, remaining capped below the 100-day Simple Moving Average (SMA) at 1.1570. The pair is currently trading above the 20-day Bollinger SMA, with resistance near 1.1535 and support at 1.1510, 1.1435, and 1.1335. The Relative Strength Index (14) at 58.9 suggests fading bullish momentum rather than a decisive trend reversal [1].
CONCLUSION
The EUR/USD pair is trading in a narrow range as traders await key US employment data and monitor inflation-driven ECB rate hike expectations. The Federal Reserve's upcoming decisions and US economic data are expected to be major catalysts for the currency pair's direction in the near term.