EUR/USD traded about 0.17% higher near 1.1550 in Friday’s European session, supported by expectations that the European Central Bank will tighten policy at its September meeting. In a Reuters poll, 57 of 69 economists projected a 25 bps rise in the ECB deposit rate to 2.50%. Separately, softer US inflation data has reduced concerns of a Federal Reserve rate increase in September, weighing on the US Dollar.
Futures pricing also shifted after US data releases: Deutsche Bank said the implied probability of a September Fed hike fell to 35% by the close, down from above 50% on the morning of Wednesday’s CPI, and from 40% just before the PPI. On the charts, EUR/USD is holding a break above a downward-sloping trendline around 1.1540 but remains capped by the 100-day SMA at 1.1567. The RSI (14) is near 60; support lies at 1.1510, with resistance at 1.1567 and then 1.1600.
Euro Bullish Shift and Central Bank Expectations
We are seeing a strong bullish shift for the Euro as it holds its breakout above the 1.1540 trendline against the US Dollar. This upward move is backed by solid expectations that the European Central Bank will raise its deposit rate by 25 basis points to 2.50% this September. Meanwhile, cooling US inflation has lowered the chances of a Federal Reserve rate hike next month to just 35%.
Trading Strategies and Technical Levels
For derivative traders, we recommend looking at bullish options strategies to capture this upward momentum. Buying short-term EUR/USD call options with a strike price near 1.1600 allows us to profit from a breakout while keeping our risk limited. Alternatively, we can use a bull call spread to reduce the cost of the trade while targeting the overhead resistance.
We must watch the 100-day simple moving average at 1.1567 closely, as this technical level currently acts as a tough ceiling. If the pair secures a daily close above this average, it will likely clear the path for a fast rally toward 1.1600. On the downside, we should set our protective stop-losses or exit signals just below the firm support floor at 1.1510.
Recent inflation data shows that Eurozone core inflation has remained sticky near 2.8%, which explains why 57 out of 69 economists expect the ECB to hike rates. Historically, when the policy gap between a hawkish ECB and a pausing Fed widens, the Euro has gained an average of 2% over the following month. This macroeconomic backdrop makes the long side of the trade highly attractive as we head into September.
