EUR/USD Breaches Ascending Channel as Dollar Rally Deepens

Eurozone Inflation Holds at 2.0 Percent, Underscoring ECB’s Patience

July’s headline inflation in the Euro Area remained unmoved at 2.0 percent year-on-year, exactly in line with June’s print and above neither upside nor downside revisions. Core CPI—which strips out the volatility of energy, food, alcohol and tobacco—also cemented at 2.3 percent, marginally exceeding the 2.2 percent consensus for a second straight month. This steady reading follows Germany’s CPI deceleration to 1.8 percent in July and mild ease in France (0.9 percent) and Italy (1.7 percent), while Spain bucked the trend with a rise to 2.7 percent. These dynamics have persuaded the European Central Bank to maintain its tightening pause, as underlying price pressures hover near the 2 percent target and euro-area growth remains modest at 1.4 percent year-on-year in Q2.

USD Strength from Fed Hawks and Robust US Growth Weighs on EUR/USD

The US dollar has rallied forcefully against its rivals, with the DXY index mounting toward the 100.00 pivot following Fed Chair Jerome Powell’s cautious yet hawkish commentary. After holding the fed-funds rate at 4.25–4.50 percent on a 9–2 vote, Powell warned that “tariff passthrough to prices may be slower than thought,” setting a higher bar for rate cuts. Concurrently, US real GDP expanded at a 3.0 percent annualized pace in Q2—versus expectations of 2.4 percent—and ADP payrolls surprised with 104,000 private jobs in July after June’s 33,000 loss. These developments reinforced markets’ “higher for longer” interest-rate stance and drove EUR/USD below key support at 1.1550–1.1600, culminating in a 3 percent monthly decline to near 1.1402.

Technical Breakdown: Channel Breach, EMAs and Oversold RSI

EUR/USD’s steeper descent began with the pair’s abandonment of its multi-month ascending channel around 1.1402, a break confirmed by daily closes beneath both the 20-day EMA at 1.1595 and the 50-day EMA at 1.1541. The only near-term floor currently resides at the 100-day EMA of 1.1361, with the 200-day SMA at 1.1143 looming should that level fail. Momentum indicators illustrate the severity of the move: the daily RSI sits at approximately 33, hovering near the oversold threshold without yet forming a bullish divergence. Unless EUR/USD reclaims 1.1540–1.1550, the path of least resistance points toward 1.1300, with 1.1200 as an extended target.

Upcoming Data Catalysts: Eurozone HICP and US NFP

Traders are closely watching today’s Eurozone HICP release for signs of disinflation or Euro strength—particularly given the ECB’s sensitivity to headline and core divergence. Later Friday, the US Nonfarm Payrolls (NFP) report is forecast to show a slowdown to 110,000 new jobs in July from June’s 147,000, with the unemployment rate edging up to 4.2 percent. A softer NFP outcome would likely trigger dollar retracement and offer EUR/USD a reprieve back toward the 1.1500 region. Conversely, an upside surprise or stickier-than-expected hourly earnings data could extend USD gains and push the pair deeper into sub-1.1400 territory.

Sentiment and Positioning: Contrarian Signals Flash Caution

Market positioning data reveals that speculators and retail traders have embraced the dollar rally, leaving EUR/USD short interest elevated while OANDA client sentiment shows a lopsided net-long bias on EUR/USD. History suggests that such crowded longs in the face of bearish technicals often precede further downside. Nonetheless, institutional buyers have accumulated euro-zone debt funds on dip, anticipating ECB-Dollar rate differentials to eventually narrow. This tug-of-war between retail-driven momentum trades and longer-term macro allocations underpins the current stalemate around 1.1400–1.1500.

Analyst Verdict: Hold EUR/USD with Tactical Buy-on-Dip Framework

Given the convergence of a bearish technical structure, strong USD macro drivers, and looming US data risks, the immediate outlook for EUR/USD remains tilted toward further lows. However, oversold readings and a potential soft NFP print present tactical buying opportunities in the 1.1360–1.1400 zone. A failure to hold that range risks a deeper slide toward 1.1300, but any decisive upside reaction above 1.1500 would invalidate the downtrend and open the door to 1.1600. Accordingly, a hold stance on existing EUR/USD positions is warranted, deploying buy-on-dip entries near 1.1380–1.1400 with stops below 1.1350 and scaling out toward 1.1500 on relief rallies.

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