The EUR/USD exchange rate pulled back and crossed a key support level after the US released mixed economic numbers last week. It will now be in the spotlight this week as the European Central Bank (ECB) publishes its interest rate decision.
Federal Reserve interest rate cut delay
The EUR/USD exchange rate pulled back as hopes that the Federal Reserve will delay its interest rate cut rose.
A report released last week showed that the headline consumer price index (CPI) rose to 2.7% from 2.4%, while the core inflation rose slightly to 2.9%. These numbers moved further away from the bank’s target rate of 2.0%.
Another report showed that the US retail sales surged in June. The headline retail sales jumped by 0.6% after crashing in the previous two months, and beating the consensus estimates.
Notably, retail sales increased across most sectors. 10 out of 13 categories recorded growth. In a note, a top analyst at the Navy Federal Credit Union said:
“There’s still a lot of trepidation about tariffs and likely price hikes, but consumers are willing to buy if they feel they can get a good deal. The word of the summer for the economy is resilient.”
These numbers came a few days after the US published strong jobs numbers. The economy added over 147k jobs in June, higher than the previous month’s 144k.
Therefore, analysts believe that the Federal Reserve is justified to hold interest rates steady in the coming meeting, defying Donald Trump’s wish for cuts. He has called for the bank to cut rates to 1%.
These numbers also raise the spectre that Trump will undermine the Fed by announcing Jerome Powell’s replacement earlier. That announcement would make Powell a lame-duck Fed Chair.
ECB interest rate decision
The next key catalyst for the EUR/USD exchange rate is the upcoming ECB interest rate decision. Unlike the Fed, the bank has been highly dovish, delivering several interest rate cuts in the past meetings.
Economists expect the bank to leave interest rates unchanged at 2.15% and hint of status quo for a while. Analysts expect the bank to cut rates by just one percentage point.
The bank’s justification for the pause is it wants to observe the ongoing trade negotiations between the US and the European Union. Trump is pushing for the US to apply 15% and 20% tariffs on all European goods.
EUR/USD technical analysis
The daily chart shows that the EUR/USD exchange rate has pulled back in the past few weeks. It crashed from a high of 1.1826 in July to the current 1.1625.
The pair has moved below the ascending trendline that connects the lowest swings since March last year. It has also retested the key support at 1.1575, the highest point on April 21.
The pair has remained above the 50-day and 100-day moving averages. Therefore, the pair will likely resume the uptrend, and possibly retest the year-to-date high of 1.1825.
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