EURUSD – Daily Chart
EURUSD has been trading in a narrow range for the past two weeks, but the upcoming inflation data could trigger a breakout to 1.0844 or a move higher to 1.12.
Global investors are preparing for a “soft landing” in the US economy, as better-than-expected data has reduced recession fears. Inflation data on Thursday is expected to show a slight increase in US consumer prices to 3.3% due to seasonal factors. However, there are hopes that this figure will give the Federal Reserve more room to cut interest rates.
Some analysts are still concerned that the central bank’s interest rate hike cycle could lead the world’s largest economy into a recession. Moody’s downgrade of regional banks this week is a warning that the ripple effects of policy tightening will harm certain sectors.
WeWork, the co-working company backed by SoftBank, has warned that it may be unable to continue operating, adding to fears about the commercial real estate market. This could put further strain on bank balance sheets.
The US has been more successful in reducing inflation than other developed markets, such as the Eurozone. According to CME Group, markets are currently pricing in an 86.5% chance of the Fed pausing its rate hikes at its September meeting, with a 13.5% chance of a 25 basis point increase.
Last week, ECB executive board member Fabio Panetta said that monetary policy in the Eurozone “must be cautious” in order to reduce inflation without damaging growth.
Both central banks are reluctant to declare an end to monetary tightening and are basing their decisions on economic data.
The ECB raised rates for the ninth time, Lagarde warned of a deteriorating economy, and Morgan Stanley expects a 4% hike in September.