EUR/USD trades little changed around 1.1550 after a brief spike in volatility triggered by the US inflation data.
US inflation eases to 3.4% in July, while core inflation comes in at 2.5%, in line with expectations.
Tensions surrounding the Strait of Hormuz limit risk appetite, while accelerating German inflation provides only limited support to the Euro.
EUR/USD trades around 1.1550 on Wednesday at the time of writing, up a modest 0.08% on the day. The pair experiences a brief spike in volatility following the release of United States (US) inflation data but quickly returns to levels seen before the publication, as the figures broadly match market expectations.
Inflation in the US, as measured by the Consumer Price Index (CPI), slowed to 3.4% YoY in July from 3.5% in June, according to the Bureau of Labor Statistics (BLS). On a monthly basis, prices rose by 0.1%, following a 0.4% decline in June. The core CPI, which excludes volatile food and energy components, increased by 0.2% MoM and 2.5% YoY. All the figures align with market forecasts.
The reaction of the US Dollar (USD) remains subdued, as the data provide no significant surprise likely to materially alter expectations regarding the Federal Reserve's (Fed) monetary policy outlook. The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, edges slightly lower following the release.
On the European side, the Euro (EUR) receives little support from accelerating German inflation. Germany's Harmonized Index of Consumer Prices (HICP) confirmed a 2.8% YoY increase in July, up from 2.4% in June. The acceleration is mainly driven by energy prices, which rose 7.3% from a year earlier, compared with 2.7% in the previous month. Excluding food and energy, inflation also accelerated to 2.6% from 2.5% in the previous month.
These figures reinforce expectations of a potential monetary policy tightening by the European Central Bank (ECB) in September. However, their positive impact on the Euro remains limited as investors also focus on the deteriorating geopolitical backdrop in the Middle East.
Concerns surrounding the peace process between the US and Iran return to the forefront following reports of attacks on vessels attempting to cross the Straits of Hormuz and Bab el-Mandeb. According to Reuters, a senior Iranian source says that no discussions are currently underway regarding an extension of the ceasefire between Washington and Tehran.
Caution also intensifies after US President Donald Trump called on Tehran to pay reparations to victims of attacks linked to the Islamic Republic. These developments reduce hopes for a swift reopening of the Strait of Hormuz and maintain a risk-averse environment that, for now, prevents EUR/USD from benefiting more significantly from the modest weakness of the US Dollar.
EUR/USD technical analysis
In the one-hour chart, EUR/USD trades at 1.1546, holding a mildly bullish intraday bias as it remains above both the 100-period simple moving average (SMA) at 1.1541 and the 200-period SMA at 1.1533. The pair is grinding higher from the day’s open at 1.1541, while the Relative Strength Index (RSI) around 60.75 suggests firm but not extreme upside momentum, hinting that buyers retain near-term control as long as price stays over these moving averages.
On the topside, initial resistance appears at the horizontal barrier near 1.1560, ahead of a higher cap at 1.1581, where fresh selling interest could emerge. On the downside, immediate support is provided by the clustered 100- and 200-period SMAs at 1.1541 and 1.1533, followed by the intraday floor at 1.1515 and deeper structural supports at 1.1500 and 1.1480, levels that would need to give way to undermine the current constructive tone.
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