EUR/USD Outlook: Hot US Inflation Data Weighs on September Rate Cut Odds

The EUR/USD pair extended its bullish momentum for the second consecutive week, climbing as high as 1.1730 before settling slightly above the 1.1700 mark. However, gains remain capped as hotter-than-expected US inflation data reduced the likelihood of aggressive rate cuts by the Federal Reserve.

Meanwhile, the Euro showed limited strength, with regional economic reports failing to excite investors. Market attention continues to revolve around US inflation numbers and trade tensions, which have been shaping short-term USD moves.

EUR/USD Technical Outlook

On the 4-hour chart, EUR/USD trades with mild indecision, holding just above the 200-period SMA while the RSI hovers near 50, signaling a lack of strong momentum.

Resistance levels: 1.1720, 1.1760, and 1.1800
Support levels: 1.1660-1.1650 (200-period SMA, Fibonacci 23.6%), 1.1620, and 1.1600

A sustained break above 1.1760 could open the door for further upside, while a dip below 1.1650 would shift bias back in favor of the USD.

Fundamentals Driving the Market

The US Dollar gained traction on Thursday after the Producer Price Index (PPI) surged 3.3% YoY in July, up from 2.4% in June, exceeding forecasts of 2.5%. Core PPI also rose sharply by 0.9% MoM, signaling sticky inflation pressures.

As a result, market odds for a 75 basis point Fed rate cut this year slipped from nearly 55% to below 45%, according to the CME FedWatch Tool.

Key events ahead include:

US Retail Sales (July) – Expected growth of 0.5% (a surprise above 1% could strengthen USD).
University of Michigan Sentiment Index (August) – Focus on 1-year inflation expectations. A decline could hurt the dollar.
Eurozone Trade Balance & German Buba Report – Low impact unless results surprise.

Short-Term EUR/USD Forecast

The Euro remains vulnerable as US inflation data favors a stronger dollar in the near term. However, if upcoming US Retail Sales disappoint while consumer sentiment softens, EUR/USD could retest the 1.1760-1.1800 resistance zone.

For now, traders should watch 1.1700 as a key pivot level—stability above it supports the bullish case, while a break lower may invite selling pressure.

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Yasher Rizwan