• The US CPI report showed the first decline in inflation since 2020.

• In June, inflation fell by 0.1% when economists had expected it to increase by 0.1%.

• The ECB might lower borrowing costs again in September and December.

The EUR/USD price analysis shows strong bullish momentum as the dollar falls amid a surge in expectations for a September Fed cut. Meanwhile, economists expect the European Central Bank to cut rates twice more this year.

It was a dark day for the dollar on Thursday when the US CPI report showed the first decline in inflation since 2020. In June, inflation fell by 0.1% when economists had expected it to increase by 0.1%. At the same time, the annual figure increased by a smaller-than-expected 3.0%.

This was a welcome surprise for the Fed which has remained cautious despite the recent downtrend. Powell insisted that policymakers need more evidence inflation will reach the 2% target. Thursday’s report opens the door for a rate cut. As a result, the likelihood of a cut in September rose from 73% to 93%.

Furthermore, if policymakers assume a dovish outlook, there will be more declines for the dollar. Additionally, a dovish Fed would allow other major central banks like the BoC and the ECB to continue cutting interest rates.

A Reuters poll on Thursday revealed that the ECB will lower borrowing costs again in September and December. However, there is a higher risk that the central bank will implement just one rate cut since services inflation in the Eurozone remains a big headache. As a result, policymakers have said there is no hurry to cut interest rates.

Eurozone inflation eased to 2.5% from 2.6% in May. Meanwhile, services inflation was at 4.1% in June.

EUR/USD key events today

• US Core PPI m/m
• US PPI m/m
• Preliminary UoM consumer sentiment

EUR/USD technical price analysis: Bullish trend continues with a higher high

On the technical side, the EUR/USD price has broken above the 1.0850 key resistance level to make a higher high. This indicates that the bullish trend remains intact. Moreover, the bullish bias is strong because the price trades well above the 30-SMA with the RSI near the overbought region.

The uptrend paused after reaching the 1.0900 key psychological level. The price might retreat to retest the recently broken 1.0850 level before challenging 1.0900 for a new high.

https://www.forexcrunch.com/blog/2024/07/12/eur-usd-price-analysis-fed-rate-cut-expectations-surge/