Free Forex Signals

• EUR/USD builds on the overnight bounce from an over-one-week low amid a softer USD.
• Signs of cooling US inflation further temper Fed hike bets and weigh on the Greenback.
• Geopolitical risks should limit losses for the safe-haven buck and cap gains for the major.

The EUR/USD pair attracts some follow-through buyers during the Asian session on Friday and looks to build on the previous day’s modest bounce from the vicinity of the 1.1500 psychological mark, or an over one-week low. Spot prices, however, remain confined in a two-week-old range and currently trade below 1.1550 amid mixed cues.

The US Producer Price Index (PPI) report, released on Thursday, fell short of estimates, which, along with soft US Consumer Price Index (CPI), pointed to a slowdown in overall inflation. This gives the US Federal Reserve (Fed) room to hold interest rates steady, which keeps the US Dollar (USD) depressed below a two-week low, touched on Thursday, and lends some support to the EUR/USD pair.

The shared currency, on the other hand, draws support from growing acceptance that the European Central Bank (ECB) will deliver one final 25-basis-point (bps) rate hike at its September meeting as inflation remains above the 2% target. However, persistent geopolitical uncertainties could limit losses for the safe-haven buck and hold back bulls from placing aggressive bets on the EUR/USD pair.

In the latest developments, NATO fighter jets shot down a drone over Latvian airspace early Friday, while Finland imposed a temporary restriction on aviation and maritime traffic in the eastern Gulf of Finland. Adding to this, Reuters reported that Russia downed 15 drones near its border with Finland and Estonia overnight, marking a fresh escalation in an over six-year-old Russia-Ukraine conflict.

Furthermore, traders continue to price in the war-risk premium on the back of the US-Iran standoff over the Strait of Hormuz. Adding to this, the Iran-backed Houthis in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb Strait, and also claimed a drone strike on a Saudi Aramco refinery, raising the risk of a broader regional conflict. This favors USD bulls and should cap the EUR/USD pair.

Technical Analysis

The EUR/USD pair maintains a modest bullish near-term bias above the 200-period Exponential Moving Average (EMA) on the 4-hour chart. That said, a breakout through a two-week-old trading range hurdle near 1.1565 is needed to back further gains. On the downside, immediate support aligns with the lower boundary of the range near 1.1500, with stronger underlying demand seen at the 200-period EMA around 1.1489. The latter reinforces the broader floor for the pair on this timeframe.

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