EUR/USD surges to 1.1878, highest since 2021, as Fed cut bets sink Dollar

• EUR/USD surges over 100 pips to four-year high before easing slightly in North American session.
• Markets price September Fed cut plus two more this year; Powell's press conference and dot plot awaited.
• German ZEW sentiment improves; Eurozone industrial production rises but misses forecasts.

The EUR/USD rallied to a four-year high of 1.1878 on Tuesday as investors ditched the Dollar on increased bets that the Federal Reserve will resume its easing cycle this week. The pair trades at 1.1865, up almost 0.90% at the time of writing.

Euro soars as traders ignore solid US data, focus on Powell, dot plot, and easing outlook

The US Dollar remains pressured as market participants await the Fed's decision and the Fed Chair Jerome Powell's press conference. Traders ignored goodish Retail Sales and Industrial Production prints in the United States (US) and drove the EUR/USD more than 100 pips to its highest level since 2021.

The Fed meeting that started on Tuesday will be the first for Dr. Stephen Miran, nominated by US President Donald Trump. Additionally, Fed Governor Lisa Cook would also attend after the US Court of Appeals denied the White House's request to block her from attending the meeting.

Traders anticipated a rate cut in September and two additional cuts for the remainder of the year. Market participants should monitor the upcoming press conference by Fed Chair Powell and the "dot plot," which allows officials to outline their projections for future interest rates.

Across the pond, the ZEW Economic Sentiment survey in Germany showed that investors' expectations are growing optimistic, despite the languishing performance of the economy. Meanwhile, Industrial Production in the Euro Area improved, but trailed estimates.

Up next in the docket, EUR/USD traders will eye the release of Inflation figures in the Eurozone.

Daily market movers: Upbeat US data fails to weigh on the Euro

• US Retail Sales surprised to the upside in August, climbing 0.6% MoM after July's 0.5% gain and well above expectations of 0.2%. The Control Group, which feeds directly into GDP calculations, advanced 0.7% MoM, also stronger than the prior 0.5%.
•  Industrial Production also rose in August, supported by a modest rebound in manufacturing and a drop in utilities output, according to Bloomberg. Factory output edged up 0.1% MoM, beating July's 0.1% contraction.
• Germany's ZEW Economic Sentiment Index rose to 37.3 points from 34.7 points in August, beating economists' forecasts for 26.3 points. ZEW president Achim Wambach said, "Financial market experts are cautiously optimistic and the ZEW indicator has stabilized, but the economic situation has worsened."
• EU's Industrial Production rose by 0.3% MoM, just missing expectations of 0.4%. Production rose, confirming views that the sector grows steadily, despite trade tensions.
• The US Dollar Index (DXY), which tracks the buck's performance against a basket of six currencies, plummeted 0.71% to 96.65.
• Fitch Ratings projects the Federal Reserve will deliver two 25-basis-point rate cuts this year, one in September and another in December--followed by three additional reductions in 2026. In contrast, the agency does not anticipate further easing from the European Central Bank (ECB).

Technical outlook: EUR/USD skyrockets, sits above 1.1850

EUR/USD uptrend extended on Tuesday, with traders poised to challenge the 1.1900 figure. Momentum remains bullish as depicted by the Relative Strength Index (RSI), which favors further upside as it remains shy of reaching overbought conditions.

If EUR/USD rises above 1.1900, the next key resistance levels would be 1.1950 and 1.2000. Conversely, a drop below 1.1850 exposes the previous yearly high of 1.1829 and 1.1800. On further weakness, the next support would be 1.1750 and the 20-day SMA at 1.1704.