Euro Falters as Dollar Finds Footing Pre-CPI

Key Takeaways:

*A dovish Fed repricing is the main driver: payrolls were revised down by 911K, cementing expectations for a September rate cut with 90% probability.

*Dollar weakness is being tempered by caution ahead of key U.S. inflation data (PPI, CPI), with headline CPI expected at 2.9%.

*European political risk remains a drag, as France’s fiscal consolidation deadlock and unstable leadership cap euro upside.

Market Summary:

The Euro retreated from an intraday high of 1.1779, ceding ground to a recovering U.S. dollar despite a slew of weak American economic data that solidified the case for Federal Reserve easing. The pair’s inability to hold its gains highlights a market in a holding pattern, anxiously awaiting conclusive evidence on the U.S. inflation trajectory.

The primary driver remains a profoundly dovish repricing of Fed expectations. The Bureau of Labor Statistics’ staggering downward revision of U.S. payrolls by 911,000 for the year through March has left an indelible mark, cementing market bets for an imminent rate cut. Futures now price a 90% probability of a 25-basis-point cut at the September 16-17 meeting. Typically, this would sink the dollar, but traders are pausing, hesitant to short the greenback aggressively ahead of critical Producer Price Index (PPI) and Consumer Price Index (CPI) prints. Consensus expects headline CPI to accelerate to 2.9%, a potential complication for the Fed’s dovish path that is keeping dollar bears cautious.

Domestic European headwinds continue to cap the Euro’s upside. The political drama in France has entered a new chapter with the appointment of Sébastien Lecornu as Prime Minister, yet the fundamental deadlock over the 2026 budget remains entirely unresolved. The need for €44 billion in fiscal consolidation is an immutable reality that the new government must confront in a hostile parliament. This ongoing uncertainty acts as a persistent drag, preventing the Euro from fully capitalizing on the dollar’s broad weakness. The market’s calm reaction to French bond spreads, while notable, does not equate to an all-clear signal for the Eurozone’s second-largest economy.

The Euro’s near-term trajectory is now tethered to a transatlantic data duel. A softer U.S. CPI read could unleash a wave of dollar selling, propelling EUR/USD toward 1.1820 and beyond. Conversely, a hot inflation print would challenge the aggressive Fed easing narrative, potentially reinforcing the dollar’s resilience and leaving the Euro trapped below 1.1750 as it contends with its own political and fiscal constraints.

Technical Analysis

EURAUD, H4

EUR/AUD has broken lower after repeatedly failing to sustain moves above the 1.7810–1.7845 zone, confirming the area as a firm resistance ceiling. Price action shows a series of lower highs since late August, reinforcing a bearish bias. The latest rejection has pushed the pair toward 1.7735, putting immediate focus on support at 1.7680. A clean break here would expose the deeper floor at 1.7540.

Momentum indicators back the bearish tilt. The RSI is sliding toward oversold territory, now around 40 and drifting lower, showing sellers remain in control. The MACD is also entrenched in negative territory with widening downside momentum, consistent with a continuation of the downtrend.

In short, EUR/AUD is carving out a descending structure after topping out near 1.7940. The bias stays bearish as long as price holds below 1.7810–1.7845, with downside targets at 1.7680 and 1.7540. A bounce above 1.7845 would be required to neutralize near-term pressure and signal stabilization.

Resistance levels: 1.7810, 1.7940
Support levels: 1.7680, 1.7540