Euro Rallies to 1.1739 High as ECB-Fed Policy Paths Diverge Dramatically

EUR/USD gained momentum after the ECB policy decision. It hit an intraday high of 1.17389 and is currently trading around 1.1261. Overall trend remains bullish as long as support 1.1575 holds. 

Main interest rates were left unchanged by the European Central Bank on Thursday, maintaining the deposit facility rate at 2.00% and pointing toward possible fulfillment of its easing cycle after eight straight cuts since June 2024. This decision shows increasing faith in the economic resilience of the eurozone; manufacturing PMI is back to expansionary territory for the first time in more than three years. Solid private consumption momentum notwithstanding inflation at 2.1%, somewhat above the 2% target. While money markets price less than even odds, President Christine Lagarde is likely to keep the ECB's data-dependent approach without committing to any future rate paths. for yet another cut before 2026, indicating the central bank may have reached the bottom of this cycle.

Released the same day, US inflation numbers revealed acceleration to a nine-month high of 2.9% year-over-year in August, with monthly CPI rising 0.4% driven Through ongoing shelter expenditures, growing energy prices, and general service industry demands. At 3.1% yearly, core inflation stayed stubbornly high, well beyond the Federal Reserve's 2% target, much complicating next week's Fed meeting and confirming assumptions for Rather than the more forceful 50bp cut some had predicted, a measured 25 basis point rate cut. With the ECB seeming close to the end of its easing cycle and the Fed starting rate cuts amid Continuous inflation, it presents problems that could help the euro against the dollar as central bank paths diverge

The pair is holding above the 55 EMA, 200 EMA, and 365 EMA in the 4-hour chart. Near-term resistance is seen at 1.1740, a break above this may push the pair to targets of 1.1780/1.1800/1.1835/1.1900. On the downside, support is seen at 1.1700; any violation below will drag the pair to 1.1660/1.15750/1.1545/1.1480/1.1435.

Market Indicators and Trading Strategy

Commodity Channel Index (CCI)-  Bullish

Average Directional Movement Index (ADX) - Neutral

 It is good to buy on dips around 1.1700 with a stop-loss at 1.1660 for a target price of 1.1835.

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