EUR/USD jumps higher to near 1.0900 as Fed rate-cut bets soar.

EUR/USD gains as soft US inflation reading boosts Fed rate-cut prospects.
A rate-cut move by the Fed in September appears to be a done deal.
The defeat of the far right has waned immediate risks of widening the French financial crisis.

EUR/USD rises to near 1.0880 in Friday’s European session. The major currency pair strengthens as fears of a financial crisis in the Eurozone’s second-largest nation diminished, and easing expectations of subsequent interest rate cuts by the European Central Bank (ECB) next week have improved the Euro’s outlook.

Immediate risks of a widening financial crisis in France have waned as Marine Le Pen’s far-right National Rally failed to maintain dominance over other parties. Economists were worried that the far right could boost fiscal spending if it came into power. However, uncertainty over the new fiscal policy framework remains high due to the expected coalition of French President Emmanuel Macron’s centrist alliance and the left wing, also known as the New Popular Front, led by Jean-Luc Mélenchon.

Meanwhile, expectations for the ECB’s subsequent rate cuts have diminished as officials see price pressures remaining close to their current levels for the entire year. ECB policymakers have refrained from committing a pre-defined rate-cut path as they worry that an aggressive policy expansion could revamp price pressures again.

Daily digest market movers: EUR/USD rises as expectations of ECB’s subsequent rate cuts subside

EUR/USD moves higher and trades close to a fresh monthly high at 1.0900, posted on Thursday. The near-term outlook of the shared currency pair strengthens as investors expect that an interest rate cut by the Federal Reserve (Fed) in the September meeting is a done deal.
According to the CME FedWatch tool, the central bank is certain to cut interest rates in September and is also expected to deliver a subsequent rate cut in the November or December meeting. The expectations for Fed rate cuts have been prompted by the United States (US) Consumer Price Index (CPI) data for June, published on Thursday, which indicated that the disinflation process has resumed after a hiatus in the first quarter of this year.
Annual core inflation, which is generally considered by Fed officials for decision-making on interest rates as it excludes volatile food and energy items, unexpectedly decelerated to 3.3%. Economists expected the underlying inflation to have increased steadily by 3.4%. The headline inflation rose to 3.0%, the lowest reading in a year, due to easing energy prices and rentals. Monthly headline inflation deflated by 0.1% after remaining unchanged in May.
Cooling US inflationary pressures and easing labor market conditions have increased Fed officials’ confidence that inflation is on course to return to the desired rate of 2%. San Francisco Fed President Mary Daly said on Thursday that a slowdown in inflationary pressures is a “welcome relief” and bolsters the case for lower interest rates. However, the timing remains a matter of debate, Reuters reported.
Improving Fed rate cut expectations is an unfavorable situation for the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, seems vulnerable near 104.40.
Meanwhile, investors await the US Producer Price Index (PPI) data for June, which will be published at 12:30 GMT. Producer inflation is expected to have grown at a higher pace on a monthly as well as annual basis.

Technical Analysis: EUR/USD eyes a decisive break above 1.0900

EUR/USD gathers strength to deliver a breakout of the Symmetrical Triangle formation on the daily timeframe. The major currency pair hovers near the downward-sloping border of the above-mentioned chart pattern around 1.0880, which is plotted from the March 8 high at 1.0980. The upward-sloping border of the triangle formation is marked from the April 16 low around 1.0620.

Advancing 20-day Exponential Moving Average (EMA) near 1.0800 suggests that the near-term trend is bullish.

The 14-day Relative Strength Index (RSI) establishes into the bullish range of 60.00-80.00, indicating that momentum has leaned to the upside.