The EUR/USD pair has surged more than 0.6% during the latest trading session, continuing to trade above the 1.1400 level after recovering from around two-week lows near 1.1407. According to latest reports, the euro has gained significant momentum as soft US inflation data eased concerns that the Federal Reserve could raise interest rates later this month. The currency pair had tested the 1.1407 level before moving higher, showing resilience in recent trading sessions. Technical analysis from Eren Sengezer, European Session Lead Analyst, shows the pair has managed to find a foothold after touching a fresh 12-month low below 1.1330 in Late June and has stabilized slightly above 1.1400 since.
US CPI data was released during the session, with the official figure surprising to the downside at 3.5%. This figure marks an important change in the US price dynamic, as it represents one of the most relevant declines of the year. June inflation moved away from the annual high of 4.2% and broke the upward trend that had been present in annual inflation levels since March. With this result, inflation is once again moving somewhat closer to the Federal Reserve's annual 2.00% target. This event is relevant for Federal Reserve expectations, as a consistent slowdown in inflation could prevent the view of a fully aggressive central bank from materializing over the coming months. As inflation declines, the need to keep interest rates higher for a prolonged period also decreases.
The US 10-year bond market has shown relevant weakness, with yields starting to move back below the 4.6% area after showing upward trend last week. This weakness in bond yields coincides with weaker demand for U.S. dollars, as reflected in the DXY index, which is now showing a relevant decline and is approaching the 100-point reference area. The DXY index decline indicates that demand for dollars has started to weaken in the short term. This behavior is reflected in the DXY index, which measures the dollar's strength against its main peers. The USD/JPY pair struggles to capitalize on the previous day's late rebound from the vicinity of mid-161.00s, or the weekly low, trading with a mild negative bias for the second straight day on Wednesday. Spot prices slip below the 162.00 mark during the Asian session, though the downside potential seems limited.
According to Eren Sengezer's technical analysis, the Relative Strength Index (RSI) indicator on the daily chart is yet to climb above 50, and the pair is yet to flip the 20-day Simple Moving Average (SMA) into support, reflecting buyers' hesitancy. On the upside, 1.1500 (round level, static level) aligns as an interim resistance level for the pair ahead of 1.1550-1.1555 (Upper arm of the Bollinger Band, 50-day SMA), 1.1600 (100-day SMA, descending trend line) and 1.1645 (200-day SMA). Looking south, the first support level could be spotted at 1.1350 (static level), followed by 1.1220 (static level, round level) and 1.1160 (static level).
Sentiments were steady for European equities yesterday and the euro appears to be pushing higher today ahead of Eurozone inflation data, as reported by Business Standard. The recovery comes as market participants reassess the Federal Reserve's monetary policy outlook following the softer US inflation data release. The currency's performance reflects improved sentiment toward European assets amid the current market conditions, with the U.S. bond market weakness creating additional support for the euro's recovery. However, escalating US-Iran tensions support the safe-haven USD, while economic risks stemming from the Middle East conflict hold back the JPY bulls from placing aggressive bets. The US military launched another set of airstrikes against Iran on Tuesday, while Iran retaliated with attacks on US military assets in Gulf countries, with US President Donald Trump warning that the US would strike Iranian bridges and power plants unless Tehran returns to the negotiating table.
