The euro remains pinned below the 1.09 barrier after failing a decisive breakout this week. EUR/USD is stuck in consolidation, trading at 1.0868, with intraday highs rejected at 1.0896. The pair briefly touched 1.0893 on Monday but met aggressive selling near 1.0900—driven by rising U.S. yields and inflation expectations pulling USD demand back to the forefront. With the Fed holding firm and the ECB still sounding dovish, the macro divergence continues to weigh on the euro. Markets are now recalibrating rate cut timing, and the balance is shifting in favor of the dollar as real yields tick higher. Core PCE and Eurozone CPI data due next week are expected to solidify this trend, with expectations for the Fed to delay any cut past September and the ECB possibly moving earlier amid slower credit conditions.
Germany’s CPI Miss Confirms Eurozone Disinflation, Fueling ECB Dovish Bets
German CPI came in at just 2.1% y/y, missing the forecast of 2.4% and adding pressure to the euro. Month-over-month inflation slowed to 0.1%, marking the weakest pace since April. Combined with France’s sub-1% services PMI reading and broader eurozone consumer weakness, the ECB’s dovish pivot looks increasingly justified. Traders are now pricing in a 58% chance of a September rate cut and fully pricing one by October. With rate differentials widening again in favor of the U.S., the euro lacks both macro and yield-based support. Bund yields dropped 5 bps to 2.37%, while U.S. 10-year Treasuries climbed to 4.31%, driving a stronger USD bid and reinforcing downside pressure on EUR/USD.
U.S. Data Resilience Adds to Dollar Tailwinds
The dollar continues to benefit from robust U.S. macro data. The S&P Global U.S. Services PMI came in at 54.6, with new orders and input prices rising — a signal that consumer strength is broad-based. Initial jobless claims fell for the fourth week in a row to 217K, reinforcing labor market strength. The Atlanta Fed GDPNow tracker rose to 3.2% for Q3 growth. These factors combined are pushing Fed rate cut odds further into December, with market-based pricing showing only a 19% chance of a September move. That repricing has reignited a dollar bid across the board, particularly against low-yielding currencies like the euro, which faces a deteriorating growth outlook and no inflation shock to delay cuts.
Positioning Signals Favor USD as Funds Rebuild Long Exposure
CFTC data shows net long USD positions rising to a 3-month high, while leveraged funds trimmed euro longs for the second straight week. Options markets show 1-week risk reversals favoring EUR/USD puts, while 25-delta skew now prices downside protection more expensively — a bearish signal from volatility traders. Meanwhile, eurozone equity inflows are stalling, with U.S. equity funds attracting $12.4 billion in fresh money this week. This shift reflects broader risk appetite tilting toward U.S. assets, reducing demand for euro exposure in both FX and equity hedging.
Technical Setup: 1.0900 Rejected, Range Support at 1.0820 Holds
Technically, EUR/USD remains in a tight descending triangle, unable to clear 1.0900 despite multiple intraday tests. RSI hovers near 49.2, reflecting neutral but softening momentum. Price action is capped below the 200-hour EMA at 1.0897 and the 50-day SMA at 1.0904. Range support remains at 1.0820, with deeper support zones at 1.0785 and 1.0740. A daily close below 1.0820 could trigger a breakdown to test the May lows near 1.0720. On the upside, only a clean break above 1.0925 would open a push to 1.0980, but current flows and macro alignment offer little support for such a move.
ECB-Fed Rate Path Divergence Keeps EUR/USD Bias Bearish
With the ECB likely to cut sooner than the Fed, and macro data continuing to favor U.S. resilience, the divergence trade remains intact. Rate differentials, flow dynamics, and technical signals all tilt toward dollar strength. Unless eurozone inflation surprises to the upside or the U.S. economy falters, EUR/USD is likely to remain under pressure. Traders should watch U.S. PCE data, eurozone CPI flash estimates, and updated Fed guidance at the upcoming Jackson Hole conference for the next macro catalysts. Until then, rallies near 1.0900 are sell opportunities, and dips toward 1.0740 remain plausible.
Verdict: SELL EUR/USD below 1.0900, Target 1.0740 with Stop at 1.0930
EUR/USD lacks bullish catalysts and continues to trade in a heavy macro environment. Short-term positioning, technical rejection at resistance, and rate divergence all support a bearish stance. As long as 1.0900 holds, the pair remains a Sell, with a target at 1.0740 and tight stop loss above 1.0930.
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