The EURUSD pair entered Tuesday’s European session under mild selling pressure, slipping just below the 1.1700 mark after climbing as high as 1.1735 in the previous session. Despite this pullback, the pair’s overall trend remains upward, fueled by robust Eurozone data and a softer US Dollar weighed down by political uncertainty and expectations of Federal Reserve rate cuts.
Investors appear cautious as they await the release of the preliminary Eurozone Consumer Price Index (CPI) figures. The report is widely anticipated to show inflation holding steady near the European Central Bank’s (ECB) 2% target, reinforcing the market’s belief that the ECB will keep interest rates unchanged at its upcoming September meeting.
Strong Eurozone Data Supports Bullish Sentiment
Recent macroeconomic indicators have painted a more optimistic outlook for the Eurozone economy. The region’s manufacturing sector showed signs of recovery, with the HCOB Manufacturing Purchasing Managers’ Index (PMI) revised upward to 50.7 for August the first expansion in nearly three years.
ECB officials have also struck a confident tone. Isabel Schnabel noted that interest rates remain “mildly accommodative,” reducing the likelihood of near-term easing. Meanwhile, President Christine Lagarde downplayed concerns about the French banking system and highlighted reduced economic uncertainty. Together, these developments have bolstered confidence in the Euro, helping it maintain strength against most major counterparts.
Dollar Faces Headwinds from Political Turmoil
The US Dollar remains under significant pressure amid escalating tensions between President Donald Trump’s administration and the Federal Reserve. Trump’s open criticism of the Fed and attempts to replace key members with loyalist figures have raised questions about the central bank’s independence.
Treasury Secretary Scott Bessent’s remarks criticizing the Fed for “a lot of mistakes” did little to calm investors. Instead, market participants remain wary, anticipating that the political interference could erode policy credibility. This instability, coupled with growing expectations of rate cuts later in September, continues to limit the Dollar’s upside potential.
Eurozone CPI Data in Focus
All eyes are now on the preliminary Eurozone CPI release for August. Economists expect headline inflation to hold steady at 2% year-on-year, while core inflation is projected to ease slightly to 2.2% from July’s 2.3%.
A stable reading would support the ECB’s current stance of maintaining rates, while an unexpected rise could reignite hawkish speculation, potentially pushing the Euro higher. Conversely, a softer print might trigger some profit-taking in the EURUSD pair, although the broader Dollar weakness could limit any significant downside.
US Data Could Spark Volatility
While Eurozone inflation dominates near-term sentiment, upcoming US economic data has the potential to sway markets later this week. Tuesday’s ISM Manufacturing PMI, expected to rise modestly to 49 from July’s 48, could indicate a slight recovery in the sector, though still signaling contraction.
More importantly, Friday’s Nonfarm Payrolls report will provide a critical snapshot of the labor market and its implications for the Fed’s rate trajectory. A strong jobs print could temporarily buoy the Dollar, while weaker-than-expected numbers may intensify bets on deeper rate cuts, favoring the Euro further.
Currency Market Snapshot
A quick look at the currency heat map shows that the Euro remains one of the stronger majors today, outperforming the Japanese Yen and holding steady against the Dollar. This relative strength underscores the market’s confidence in the Eurozone’s economic outlook and the ECB’s steady policy approach.
EURUSD Technical Outlook
From a technical perspective, EURUSD shows firm support near 1.1675, with buyers stepping in to defend that zone in recent sessions. Resistance sits around 1.1740, and a sustained break above this level could open the door to a move toward the 1.1800 handle. On the downside, a break below 1.1650 could trigger a deeper retracement, but the overall bullish structure remains intact unless this level is decisively breached.
Key Factors to Watch
Eurozone CPI Report: Confirmation of steady inflation near 2% could keep EURUSD supported.
US Political Climate: Continued clashes between the White House and the Fed may keep Dollar bulls sidelined.
US Economic Data: PMI readings and the upcoming Nonfarm Payrolls report will be pivotal in shaping short-term Dollar direction.
ECB Commentary: Any shift in tone from policymakers could spark renewed volatility in Euro pairs.
Conclusion
The EURUSD pair’s pullback from Monday’s highs appears to be more of a consolidation phase than a trend reversal. With the Euro supported by improving economic data and hawkish ECB commentary, and the Dollar weighed down by political interference and rate-cut expectations, the bias for the pair remains upward.
Traders will closely monitor Eurozone CPI data for immediate direction, but the bigger test lies in the US economic reports scheduled for later in the week. Unless there’s a significant shift in sentiment, the Euro seems poised to hold its ground, with the potential to test higher resistance levels in the days ahead.
