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Lacking Bullish Conviction, EUR/USD Moves Away From Multi-Week Low Established On Friday
The EUR/USD attracts buyers on Monday, snapping a six-day losing trend and settling at a six-week low. In light of the USD's underlying favourable sentiment, the upside appears limited. The German PPI and the Buba monthly report will provide traders with fresh impetus.
The EUR/USD pair obtains some traction on the first trading day of the new week and appears to have snapped a six-day losing streak to its lowest level since July 6 at around 1.0845 on Friday. Spot prices, however, lack bullish conviction and remain below the 1.0900 level throughout the Asian session, necessitating caution prior to positioning for any significant intraday appreciation.
The US Dollar (USD) begins the week on a subdued note and consolidates its recent gains to its highest level since July 12; this is viewed as a significant factor supporting the EUR/USD pair. However, growing expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period of time continue to act as a tailwind for the dollar and discourage traders from placing fresh bullish wagers on the major.
The US central bank is expected to halt its rate-hiking cycle in September, although the markets have priced in one more 25-bps increase by the end of the year. The latest US CPI report, which revealed a moderate increase in consumer prices in July, confirmed the predictions. In addition, the US PPI rose slightly more than anticipated, indicating that the fight to return inflation to the Fed's 2% target is far from over.
In addition, the FOMC meeting minutes from July 25-26 revealed that policymakers continued to prioritise the fight against inflation. The Fed should be able to maintain its hawkish stance as incoming macroeconomic data continue to indicate that the US economy is exceptionally resilient. The outlook continues to support elevated US Treasury bond yields, which, along with impending recession risks, act as a tailwind for the dollar and limit the EUR/USD pair.
In addition, rumours that the European Central Bank (ECB) will halt its streak of nine consecutive rate increases in September may also keep the EUR/USD pair under control. Ahead of the crucial Jackson Hole Symposium later this week, where remarks from central bankers may infuse significant volatility into the markets, traders may refrain from placing aggressive wagers. This warrants additional caution when dealing with aggressive bulls.
The aforementioned fundamental environment suggests that it would be prudent to wait for significant follow-through buying before concluding that the recent downtrend observed over the past month or so has ended. In the absence of pertinent market-moving economic data from the US on Monday, traders await the release of the German PPI and Buba Monthly Report, which may impact the shared currency and provide some impetus to the EUR/USD pair.
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