EUR/USD: Eurozone inflation slightly exceeds expectations

Faced with the lack of clarity from the Fed this week, currency traders opted for short-term positions favouring the euro - a move also fueled by the resilience of other risk assets and a spike in Eurozone inflation. As a reminder, the Federal Reserve - now led by K. Warsh - opted to keep rates unchanged, although three Board members voted in favor of raising the cost of borrowing in dollars.

"While the Federal Reserve is maintaining interest rates within the 3.50%-3.75% range as expected, it has made it clear that further rate hikes are by no means off the table," commented Frank Sohlleder, an analyst at ActivTrades.

"The market reaction was immediate: US government bond yields rose significantly during the press conference. This is a clear signal that market participants are beginning to doubt the Fed's assurances regarding inflation. Consequently, the final decision on the future interest rate trajectory will likely be postponed until the pivotal FOMC meeting in September."

Today, currency traders received the preliminary Eurozone consumer price data for July. Excluding food, energy, alcohol, and tobacco, prices rose by 2.4% year-on-year - surpassing both the consensus forecast (2.3%) and the figures for June (2.3%). "Overall, we believe that inflationary pressures are currently driven primarily by energy prices, while indirect effects remain limited for the time being. However, given the volatility of energy markets, continued vigilance on the part of the ECB remains necessary. We therefore continue to anticipate an ECB hike in its deposit rate to 2.50% in September," explains Ulrike Kastens, a DWS economist.

It is worth noting that PCE prices - the Fed's key measure for assessing inflation - rose less than expected (0.1% versus a forecast of 0.2% and a reading of 0.3% for the previous month).

Keep an eye out for the preliminary consumer confidence index (U-Mich) data at 16:00 (EU time).

Right now, the EUR/USD is trading at $1.14881.

KEY TECHNICAL FACTORS
We are suspending our short positions on the major currency pair above the $1.1408 level, pending a confluence of new technical signals.

MEDIUM-TERM OUTLOOK
Based on the key technical factors mentioned, our view on the EUR/USD is neutral in the medium term.

We will maintain this neutral stance as long as the EUR/USD remains between the support level at $1.1369 and the resistance level at $1.1588.