The EUR/USD pair posted modest losses, trading around 1.1675 during the early Asian session on Thursday, following a sharp surge in the previous session. The Euro edged lower against the US Dollar despite fading expectations for a Federal Reserve rate hike, as the latest Fed meeting minutes and soft US economic data continued to weigh on the Greenback [1].
Minutes released on Wednesday revealed that Fed officials indicated a need to raise interest rates soon unless there was more progress on bringing down inflation. The US central bank kept the benchmark interest rate steady at 3.5%-3.75% at its July policy meeting, with some officials emphasizing the necessity for action to return inflation to target. Recent data releases have shown modest price increases on a monthly basis, but inflation remains well above the Fed’s 2% target [1].
Signs of cooling US inflation have dampened market expectations for a Fed rate hike, with markets now pricing a 32.7% chance of a hike at the upcoming policy meeting, down from 47% a month earlier, according to the CME FedWatch Tool [1]. In contrast, financial markets are pricing in a continuation of the European Central Bank (ECB) hiking cycle, with the ECB Watch Tool indicating a 90% to 94% probability of a 25 basis points hike to 2.50% at the next policy meeting scheduled for September 9 [1].
Analysts at Societe Generale noted that improved growth expectations in the Eurozone are supporting the shift in relative rates, which initially began as a reaction to higher inflation. Technical analysis shows EUR/USD maintains a bullish near-term bias, holding above the 100-day simple moving average and the Bollinger middle band, with the Relative Strength Index (14) deep in overbought territory above 70. Immediate resistance is at the upper Bollinger band at 1.1685, while initial support is at 1.1675, followed by the 100-day SMA near 1.1570 and the Bollinger middle band at 1.1525 [1].
CONCLUSION
The Euro's modest decline below 1.1700 reflects shifting rate expectations, with fading Fed hike odds and strong ECB tightening prospects. While technicals suggest the EUR/USD remains in a bullish posture, overbought conditions may limit further upside in the near term. Market participants are closely watching upcoming central bank meetings for further direction.