Euro gains as softer US inflation weighs on US Dollar

• EUR/USD rises as softer-than-expected US CPI data weighs on the US Dollar, reducing expectations of a July Fed rate hike.
• US inflation and employment indicators weakened, with headline CPI falling 0.4% MoM, annual inflation easing to 3.5%, and the ADP four-week average declining to 19.75K.
• Fed Chair Kevin Warsh maintained a hawkish tone, while markets also assessed Trump’s decision to limit the blockade to vessels linked to Iranian ports.

EUR/USD trades higher near 1.1420 on Tuesday as the US Dollar (USD) weakens following softer-than-expected United States (US) inflation data. The Euro’s recovery remains mainly driven by broad Greenback selling rather than Eurozone developments.

The US Consumer Price Index (CPI) declined 0.4% MoM in June, compared with expectations for a 0.1% decrease and May’s 0.5% increase. Annual inflation slowed sharply to 3.5% from 4.2%, below the 3.8% market forecast. Core CPI remained unchanged on the month, while the annual underlying rate eased to 2.6% from 2.9%.

US employment indicators also softened, with the ADP Employment Change four-week average declining to 19.75K from 21K. The figures reduced expectations of a Federal Reserve (Fed) interest-rate increase in July, placing additional pressure on the US Dollar.

However, Fed Chair Kevin Warsh maintained a relatively hawkish tone during his congressional testimony, reiterating the central bank’s commitment to controlling persistent inflation. Warsh also described the US labor market as broadly stable, highlighting low unemployment, limited layoffs and solid nominal wage growth.

Geopolitical developments remain in focus after US President Donald Trump said the United States would impose a full blockade, but only on vessels traveling to and from Iranian ports. Trump also abandoned the proposed 20% US reimbursement fee for cargo crossing the Strait of Hormuz, replacing it with trade and investment agreements involving Gulf states.

Short-term technical analysis:

In the four-hour chart, EUR/USD trades at 1.1423, holding a mildly bullish bias as it sits above both the 20-period Simple Moving Average (SMA) at 1.1418 and the 100-period SMA at 1.1408. The clustering of these averages just beneath spot suggests underlying demand on shallow dips, while the Relative Strength Index (RSI) around 52.7 leans slightly positive without yet signaling overbought conditions.

On the topside, immediate resistance emerges at the horizontal barrier at 1.1434, followed by a stronger cap at 1.1446. On the downside, initial support is seen at the 20-period SMA at 1.1418, ahead of the nearby horizontal floor at 1.1416. A deeper pullback would expose the 100-period SMA at 1.1408 and the lower horizontal level at 1.1404 as the next key demand areas.

(The technical analysis of this story was written with the help of an AI tool. Know more.)