empty
14.08.2024 12:18 AM
Euro on the Offensive

Much ado about nothing. In anticipation of the release of the US Producer Price Index, there were many speculations about a strong market reaction to inflation surprises. In reality, the unexpected slowdown in the PPI resulted in a modest attempt by EUR/USD to break out of the short-term consolidation range of 1.088–1.094. The bulls didn't achieve significant gains on their first attempt. Should they wait until Wednesday for the CPI data to be released?

In July, producer prices slowed to 0.1% month-over-month and 2.2% year-over-year. The core PPI remained unchanged compared to June and increased by 2.3% over 12 months. The significant aspect is the first reduction in service inflation in a long time. The figures suggest a developing disinflationary process in the US and provide the basis for the futures market to increase the probability of a 50 bps rate cut by the Federal Reserve in September from 49% to 54%.

The futures market still believes that the Fed will cut borrowing costs by 100 bps in 2024, which implies activity at each of the three remaining FOMC meetings this year. In 12–18 months, the rate is expected to fall to 3%, a clear bullish signal for EUR/USD.

Market Expectations for the Federal Funds Rate

This image is no longer relevant

Goldman Sachs considers such forecasts overstated and views the market reaction to the US employment data for July as excessive. In reality, there is no talk of a recession in the US. The American economy appears weaker than before, but GDP can still grow above trend. This performance allows the Fed to avoid rushing into easing monetary policy. As soon as the market realizes it, the story of early 2024 with the strengthening of the U.S. dollar will repeat itself. In this regard, Goldman Sachs recommends selling EUR/USD.

This strategy is supported by the decline in investor confidence in the German economy in August to its lowest level since January amid turmoil in global financial markets. As a pro-cyclical currency, the euro reacts strongly to deteriorating global economic conditions. If the US, China, Japan, and Germany face trouble, EUR/USD will likely head south.

Dynamics of Investor Confidence in the German Economy

This image is no longer relevant

This image is no longer relevant

However, the release of the data on the US Consumer Price Index will answer all the questions. This opinion is present on Forex, but, as with the PPI, it may be much ado about nothing. Investors gradually shift their focus from inflation to recession, so the market reaction might be muted. We'll wait and see.

Technically, on the EUR/USD daily chart, the bulls' failure to break the resistance at the pivot level of 1.0945 indicates weakness among the bulls. However, a second attempt might be more successful, so a re-entry into long positions after successfully testing the upper boundary of the 1.0880-1.0940 consolidation range is worth considering.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

The Market Doesn't Dare to Go Against the Crowd

"Dance while the music plays." The S&P 500 has just completed a 9-day rally—the longest since 2024—driven by a strong U.S. labor market report and upbeat earnings from tech giants

Marek Petkovich 08:49 2025-05-05 UTC+2

GBP/USD Overview – May 5: Bank of England and Fed Meetings

The GBP/USD currency pair failed to show any decisive movement on Friday—it neither rose nor fell significantly. Many analysts interpreted the U.S. labor market and unemployment data as positive simply

Paolo Greco 06:44 2025-05-05 UTC+2

EUR/USD Overview – May 5: A New Week of Ordeals for the Dollar

The EUR/USD currency pair remained flat on Friday. The day saw both upward and downward movements. It is a notable achievement for the dollar that it has appreciated over

Paolo Greco 06:44 2025-05-05 UTC+2

EUR/USD: Weekly Preview. The May FOMC Meeting and (Possible) U.S.-China Trade Talks

The new week promises to be informative for EUR/USD traders. Most notably, the next Federal Reserve meeting, scheduled for May 6–7, will determine the central bank's future course of action

Irina Manzenko 05:53 2025-05-05 UTC+2

What to Pay Attention to on May 5? A Breakdown of Fundamental Events for Beginners

Very few macroeconomic events are scheduled for Monday. The only noteworthy release is the ISM Services PMI from the U.S., but serious doubts exist about whether the market will

Paolo Greco 04:15 2025-05-05 UTC+2

The U.S. Dollar: Weekly Preview

The hit parade of American news and events will continue. I still believe that the most significant factor in the market is Donald Trump's decisions. It's enough to compare

Chin Zhao 00:51 2025-05-05 UTC+2

British Pound: Weekly Preview

Recent reviews for both instruments have become predictable and even somewhat dull. The entire set of factors capable of influencing market sentiment and instrument movement boils down to the President

Chin Zhao 00:51 2025-05-05 UTC+2

The Euro: Weekly Preview

For several weeks, the euro has remained in a sideways range. It seems like every analyst has already pointed this out and noted that without news from Trump, there's

Chin Zhao 00:51 2025-05-05 UTC+2

EUR/USD: Analysis and Forecast

The EUR/USD pair is attracting buyers today, breaking a three-day losing streak and attempting to build intraday momentum above the psychological 1.1300 level. This indicates a renewed interest from buyers

Irina Yanina 11:59 2025-05-02 UTC+2

U.S. Labor Market Data Could Be a Major Disappointment

Employment growth in the U.S. likely slowed in April, although the unemployment rate is expected to remain unchanged, pointing to healthy but moderate demand for labor. However, the Trump administration's

Jakub Novak 10:08 2025-05-02 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.