- Inflation in Germany eased more than expected.
- Estimates show that pressures on Eurozone prices could fall from 2.2% to 1.9%.
- The core US PCE price index rose 0.1%, below estimates.
The EUR/USD outlook shows a sudden, brief rally after German inflation data triggered a decline in bets on an ECB rate cut. Meanwhile, the dollar remained vulnerable after last week’s soft inflation data. Market participants are now awaiting the non-farm payrolls report.
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Data on Monday revealed that inflation in Germany eased more than expected. Accordingly, traders expect soft eurozone inflation in September. However, the euro rallied as the figures were better than those from France and Spain.
The European Central Bank paused after starting its monetary easing in June. However, inflation continued to fall, and economists expect a further decline in September. Estimates show that pressures on Eurozone prices could fall from 2.2% to 1.9%. Such an outcome would encourage the ECB to further reduce borrowing costs. Analysts expect the central bank to cut rates in October and December.
On the other hand, the Fed is quickly catching up with other central banks after it began cutting rates by 50 basis points. Moreover, US inflation has been steadily declining, giving policymakers confidence in lower borrowing costs. On Friday, the core PCE price index rose 0.1%, below estimates of 0.2%. The report pointed to the likelihood of a 50 basis point rate cut at the November meeting, weighing on the dollar.
The next big report is nonfarm payrolls, which will further shape the outlook for rate cuts. Economists predict a slight increase in job growth in September. Meanwhile, the unemployment rate could remain stable at 4.2%.
EUR/USD key events today
Technical Outlook EUR/USD: Price action indicates a corrective move
On the technical side, the EUR/USD price paused again at the 1.1200 resistance level. At the same time, the price is trading above the 30-SMA with the RSI above 50, supporting the abullish bias. Additionally, EUR/USD is trading in a bullish channel, creating higher highs and lows.
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However, the price action shows that both bears and bulls are strong. Therefore, the uptrend could be a corrective move. In that case, the price could soon make a sharp, impulsive move up or down. A break above 1.1200 would allow the price to continue rising. On the other hand, the RSI made a bearish divergence. If it plays out, the price could collapse to break out of its channel.
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