EUR/USD steadies near $1.167 as traders eye inflation data and U.S. policy risks

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EUR/USD outlook and levels

Highlights

- EUR/USD trades around 1.1670 after Monday’s 1.1735 high, up ~0.8% in August.

- HCOB PMI revised to 50.7; ECB seen on hold as inflation near 2% steadies policy.

- Key levels: support 1.1635; resistance 1.1735/1.1787; RSI ~56 supports mild upside.

Despite the euro's nearly 0.8% August advance and a clean break above a summer downtrend, event risk remains significant. A brighter macro tone has underpinned the single currency. The HCOB Manufacturing PMI was revised up to 50.7, its first expansion in three years, bolstering sentiment after months of sub-50 readings.

EUR/USD price dynamics (Source: TradingView)

European Central Bank officials, including Christine Lagarde and Isabel Schnabel, have sounded confident about stability, reinforcing expectations the ECB will hold rates at its September meeting. With headline inflation seen hovering near 2%, the Governing Council has little reason to shift policy quickly, and that steadiness has helped the euro retrace from late-August lows near 1.1390 into the mid-1.17s.

Dollar softens amid policy noise

The dollar’s defensive tone reflects both monetary and political headwinds. Markets continue to price additional Fed rate cuts, while uncertainty around central bank independence has added a risk premium to the greenback.

Legal skirmishes over efforts to reshape Fed leadership and public criticism from senior officials have unsettled investors at the margins. Into a heavy data slate of ISM, job openings and Friday’s nonfarm payrolls, the bar for a durable dollar rebound is high. A downside surprise would likely extend the euro’s advantage, while a firm jobs print could cap EUR/USD closer to recent highs.

Technical view: Breakout holds above 1.1635

On the four-hour chart, EUR/USD is consolidating within a rising channel carved out since late July’s 1.1390 low. Monday’s thrust to 1.1735 stalled near a dense resistance pocket that includes the 61.8% to 78.6% Fibonacci retracement band of the June to July slide. The 1.1700 to 1.1710 area was a notable hurdle tied to the former descending trend line.

Price is now orbiting a tight moving average cluster, the 20- and 50-period EMAs around 1.1660 to 1.1680, while the 100- and 200-period EMAs trail just below. As long as the pair holds above 1.1635, a key Fibonacci support, the path of least resistance remains higher. A close through 1.1735 would open 1.1787, the July swing high, and then 1.1850. Sustained losses beneath 1.1635 would expose 1.1590 and 1.1543. Momentum is aligned, with the RSI near 56, signaling firm but not stretched conditions. A move above 60 typically precedes extension attempts.

Short-term outlook: Data in the driver’s seat

Today’s euro-area CPI print is the first test. An upside surprise would validate the euro’s breakout and likely draw dip-buyers toward 1.1700 to 1.1735. A softer read risks a drift back into the mid-1.16s. Beyond Europe, the focus flips to the U.S. labor market. Weak payrolls would reinforce a deeper September cut narrative and weigh on the dollar. Strength would argue for patience, tempering EUR/USD near resistance. Until a decisive catalyst lands, the pair is likely to oscillate inside 1.1635 to 1.1735, with traders fading the edges.

Our earlier analysis emphasized a constructive backdrop for EUR/USD as long as 1.1635 support held, with upside targets at 1.1735 and 1.1787. That framework remains valid. The pair continues to respect the breakout zone, but confirmation of a more durable advance still hinges on a sustained close above 1.1735.

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