German inflation unexpectedly fell more than expected in August, raising concerns about the Eurozone economy and the European Central Bank’s (ECB) monetary policy path. The upcoming release of the Eurozone Harmonized Index of Consumer Prices (HICP) could further support the case for a potential interest rate cut by the ECB in September.
The ECB’s decision to reduce interest rates in June was driven by economic uncertainties rather than inflationary pressures. The central bank’s primary focus is on maintaining price stability, with inflation expected to reach the 2% target by 2026.
With the HICP predicted to show a decrease in August, the EUR/USD pair may continue its corrective decline. A lower-than-expected inflation rate could prompt the ECB to further ease its monetary policy, potentially leading to a depreciation of the Euro against the US Dollar.
Technical Analysis of EUR/USD Pair
From a technical standpoint, the EUR/USD pair is currently below the 1.1100 level and lacks clear signs of a reversal. Despite the recent downward trend, the pair remains above the 20 Simple Moving Average (SMA) on the daily chart, indicating potential support around the 1.1020 area.
However, a break below 1.1020 could trigger a further decline towards the 1.0940-1.0960 range before the weekly close. On the other hand, a recovery above 1.1140 could signal a potential reversal and a retest of the 1.1200 zone.
Overall, the unexpected drop in German inflation and the upcoming HICP release could have significant implications for the EUR/USD pair, with the ECB’s monetary policy decisions likely to influence market sentiment in the coming weeks.