EUR/USD Outlook: Consolidation Likely as USD Strength Returns

EUR/USD pulled back from monthly highs above 1.1700 after the US Dollar regained strength, driven by hotter-than-expected US wholesale inflation data. The pair now trades near 1.1678, with traders eyeing upcoming US Retail Sales and the University of Michigan Consumer Sentiment report for the next directional move.

Technical Analysis

Resistance Levels: 1.1788 (July 24 high), 1.1830 (2025 peak), and 1.1909 (September 2021 high) remain key upside targets.
Support Levels: 1.1391 (August 1 low), 1.1210 (May 29 low).
Momentum Signals: RSI has eased toward 50, signaling a slowdown in bullish momentum, while the ADX at 14 shows a weak trend.

Fundamental Drivers

The Euro’s decline came after US inflation data exceeded expectations, reducing bets on a larger 50-bps Fed rate cut in September. Weekly jobless claims also showed resilience, supporting USD demand.

However, risk sentiment improved after the US and China extended their trade truce by 90 days, avoiding imminent tariff hikes. The US–EU trade deal also helped boost market optimism, with significant tariff reductions on European exports.

Central Bank Outlook

Federal Reserve: Kept rates unchanged; Chair Jerome Powell remained cautious despite dovish expectations.
European Central Bank: President Christine Lagarde described growth as “solid,” with markets pushing the first ECB rate cut expectations to spring 2026.

Market Positioning

CFTC data (August 5) showed speculators reducing net long EUR positions to a five-week low (~116K contracts), while commercial traders cut net shorts. Open interest fell to its lowest in four weeks, suggesting a potential shift in sentiment.

📊 Forecast:
For now, EUR/USD is likely to consolidate unless the Fed surprises markets or geopolitical tensions ease significantly. USD moves remain the dominant driver for the pair in the short term.

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Yasher Rizwan