EUR/USD stands tall as US data cements hopes of Fed interest-rate cuts

• The Euro extends gains as weak US Initial Jobless Claims and moderate inflation clear the path for Fed rate cuts.
• Initial claims for unemployment benefits in the US increased at their fastest pace in four years.
• The ECB left interest rates unchanged and curbed hopes of further monetary easing in the near term.

The EUR/USD pair extends gains on Friday, trading around 1.1745 in the early European session, on track to post a second consecutive weekly gain. The US Dollar remains pinned near recent lows after US data cemented hopes of Federal Reserve (Fed) interest-rate cuts, while the European Central Bank (ECB) maintained the status quo and sounded optimistic about the economic outlook.

The ECB left its Deposit Facility rate unchanged at 2% and President Christine Lagarde said that "risk to economic growth has become more balanced". These comments curbed market expectations of further interest rate cuts in the near term and provided a significant boost to the Euro.

In the US, data from the US Department of Labour revealed that Initial Jobless Claims increased at their fastest pace in the last four years last week, while August's Consumer Prices Index (CPI) advanced broadly in line with the market expectations, clearing the way for a quarter-point Fed rate cut next week and at least another one before the end of the year.

In Friday's calendar, the focus is on the University of Michigan's US Consumer Sentiment Survey, which is expected to show a further deterioration, adding pressure to the US central bank to ease its monetary policy. The risk for the US Dollar is skewed to the downside.

Daily digest market movers: The Dollar loses footing following weak employment data

• US Initial Jobless Claims increased to 263K in the first week of September, from 236K in the previous week, against expectations of a slight decline to 235K. Even though the state of Texas accounted for most of this increase - suggesting that there were some temporary distortions in the data - these figures provide further evidence of the deterioration of the US labour market and set the conditions for the Fed to cut rates by at least 25 basis points next week.
• At the same time, US Consumer Price Index figures confirmed the moderate uptick in inflation forecasted by market analysts. Yearly inflation picked up to 2.9% from the 2.7% level seen in July, while the core CPI increased at a steady 3.1%, also in line with expectations. The monthly CPI accelerated 0.4% from July's 0.2% pace, beating market expectations of a 0.3% increase. These numbers did not alter Fed easing bets, but trimmed expectations of a larger-than-usual 50 bps cut next week.
• In Europe, the European Central Bank left the Rate on the Deposit Facility steady for the second consecutive meeting, and President Lagarde's comments at the ensuing press conference revealed that the bank is not planning to ease its monetary policy further in the near term. Lagarde sounded confident about the economy and warned about the uncertain inflation outlook. All in all, a balanced stance that poses a Euro-supportive monetary policy divergence with the Fed.
• German data released on Friday confirmed that consumer inflation stood at 0.1% in August with July and at 2.2% compared with August last year. The impact on the Euro has been minimal.
• At 14:00 GMT, the preliminary US University of Michigan Consumer Sentiment Index for September is expected to further decline to 58.0 from August's 58.2 reading. These figures are about 15% below the average levels of the second half of 2024, revealing a significant deterioration in consumers' confidence and adding bearish pressure on the US Dollar.

Technical Analysis: EUR/USD maintains its bullish bias intact

EUR/USD bounced up from the bottom of the last three weeks' ascending channel on Thursday, keeping the broader bullish bias intact. Technical indicators show a moderate upside momentum on Friday. The RSI has bounced back beyond the 50 level, and the MACD has crossed above the signal line, suggesting that further appreciation looks likely.

Immediate resistance is at the intra-day high of 1.1745. Further up, the 1.1780-1.1790 (September 8, July 24 highs) is likely to hold bulls ahead of the channel top, now at 1.1810.

To the downside, the 1.1720 level is limiting downside attempts so far. Below here, the channel bottom is at 1.1670, right above Thursday's low at 1.1660. A breach of that level would cancel the bullish view and increase pressure towards the September 2 and 3 lows in the area of 1.1610.