The EUR/USD pair is trading flat around 1.1700 for a second day after surging nearly 2% this week, buoyed by deepening US Dollar weakness and growing expectations of Federal Reserve rate cuts. The pair hit a multi-year high of 1.1745 on Thursday and is set for its seventh consecutive daily gain.
Market focus has now shifted to the upcoming US PCE Price Index the Fed’s preferred inflation measure scheduled for release later today. A soft reading could cement expectations of a September rate cut, potentially pushing EUR/USD even higher.
Trump vs. Powell and Weak US GDP
The US Dollar has slumped sharply this week, with the Dollar Index (DXY) down 1.7% over five days and extending its 2025 losses to over 11%. The drop is driven by political uncertainty after Donald Trump’s harsh criticism of Fed Chair Jerome Powell and hints at replacing him, raising concerns about the Fed’s independence.
At the same time, disappointing US economic data including a revised Q1 GDP contraction of -0.5%, weak jobless claims, and declining consumer confidence have fueled fears of a broader slowdown, further weighing on the Dollar’s strength as a global reserve currency.
Eurozone Sentiment Mixed, But Geopolitical Calm Helps
The Euro remains resilient despite mixed Eurozone data, supported by a weaker US Dollar and easing geopolitical tensions following the Israel-Iran truce, which stabilized oil prices. Investor optimism is also buoyed by expectations of EU infrastructure and defense stimulus later this year.
While sentiment indicators were largely disappointing such as the Economic Sentiment Index falling to 94.0 and a weaker Business Climate Index steady consumer confidence and improved services sentiment, along with rising inflation in France and Spain, helped cushion the downside.
PCE Inflation Data Key for EUR/USD Direction
All eyes are on the upcoming US PCE inflation report, with expectations of headline inflation at 0.1% MoM and 2.3% YoY, and core inflation also at 0.1% MoM and 2.6% YoY. A softer-than-expected reading could boost Fed rate cut hopes and push EUR/USD above key resistance.
On the upside, higher than expected data could result in a near-term correction. Technically, EUR/USD is trading below resistance at 1.1745 and 1.1795. Support is seen at 1.1680 and the 1.1630-1.1640 area. The 14-period RSI is showing signs of overbought, so if data disappoints, there is likely to be a consolidation or pullback.
Conclusion
EUR/USD remains in a bullish structure, driven by a battered US Dollar and market optimism around Eurozone recovery. However, with the pair hovering near technical resistance and the US inflation print looming, short-term direction hinges on today’s PCE outcome.
If the inflation data supports a dovish Fed, the pair could eye a breakout toward 1.1800. If not, we may see a temporary retreat toward 1.1640.
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