The EUR/USD pair surged on Wednesday, breaking the 1.0800 resistance level after the release of softer-than-expected US Consumer Price Index (CPI) data for May. This sparked a wave of optimism that the Federal Reserve (Fed) might cut interest rates sooner than previously thought, possibly as early as September.
US Inflation Cools, Euro Heats Up
Both headline and core inflation figures for May fell short of forecasts, prompting a significant reassessment of the Fed’s monetary policy trajectory. The CME FedWatch tool now indicates a 55.4% probability of a rate cut in September, a notable increase from earlier projections.
Fed Decision in Focus: Eyes on the Dot Plot
While the market doesn’t anticipate any immediate changes to interest rates at the Fed’s upcoming meeting, all attention is on the updated “dot plot,” which provides valuable insights into policymakers’ interest rate projections. With inflation cooling, the number of projected rate cuts for this year might be revised downward compared to March’s estimates.
Euro Gains Despite Political Headwinds
Despite the boost from the US inflation data, the Euro remains vulnerable against other currencies due to lingering uncertainties surrounding French elections and potential political instability in the Eurozone. ECB policymakers are also expressing caution about the pace of future rate cuts, citing concerns about sticky inflation driven by wage growth.
Technical Analysis: EUR/USD Breaks Key Resistance
The EUR/USD pair has experienced a V-shaped recovery, rebounding from a near five-week low and decisively breaking above a symmetrical triangle pattern on the daily chart. This bullish move indicates a potential continuation towards the two-month high near 1.0900.
Additionally, the pair has reclaimed the 200-day Exponential Moving Average (EMA) at 1.0800, further solidifying its positive outlook. The Relative Strength Index (RSI) is stabilizing near 40.00, suggesting a potential sideways movement in momentum.
