EUR/USD – ECB eyeing German, eurozone CPI

The euro has extended its decline on Thursday. In the European session, EUR/USD is trading at 1.1095 at the time of writing, down 0.22% on the day. The US dollar has rebounded against the euro this week, climbing 0.89%.

German and eurozone inflation expected to ease in August

Inflation is expected to ease in Germany and the eurozone, which could have significant impact on the European Central Bank rate announcement on Sept. 12. Inflation declined in German states and the national harmonized inflation rate is expected to fall to 2.1% y/y in August, down from 2.3% in July.

The eurozone releases CPI on Friday. The market estimate for CPI stands at 2.2%, compared to 2.6% in July. The core inflation rate is expected to creep lower to 2.8%, down from 2.9% in July. A drop in inflation in Germany and the eurozone would support the case for another rate reduction next month. The weak eurozone economy and the fact that the Federal Reserve is also poised to lower rates have strengthened the case to cut rates. At the same time, concern about wage increases is a reason for the ECB to hold off on cutting rates.

The Federal Reserve is poised to cut rates next month, which would mark the US central bank joining in the global trend of central banks lowering rates now that the threat of inflation has largely abated. Most FOMC members have come out in favor of a September cut but Atlanta Fed President Raphael Bostic said on Wednesday that the Fed should wait for additional data before lowering rates as it would be a mistake to cut and then have to hike again.

EUR/USD Technical

• EUR/USD is testing support at 1.1087. Below, there is support at 1.1055
• There is resistance at 1.1138 and 1.1170

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