EUR/USD remained pinned near 1.1640 in late August after another failed push toward 1.1690, leaving 1.1620 as the key line holding the pair in a constructive short-term range. The immediate focus is no longer the failed breakout itself, but whether the euro can keep its footing as markets approach a crucial policy window.
The pair has climbed 2.72% from its June 24 low of 1.1355, but momentum has stalled just below a dense resistance zone around 1.1685 to 1.1692. That leaves investors balancing two competing forces: firmer expectations for a European Central Bank rate increase in September and lingering uncertainty around the Federal Reserve’s next move.
With EUR/USD still trading above former resistance at 1.1620, the market is signaling patience rather than capitulation. For currency investors, the next decisive move may hinge on whether eurozone inflation and ECB guidance can outweigh dollar support from still-sticky U.S. inflation and a relatively high policy-rate advantage.
Key Facts
- EUR/USD traded around 1.1638 to 1.1650 in the European session after failing to sustain gains above 1.1685 and the 1.1692 Fibonacci retracement level.
- The pair is up 2.72% from its June 24 low of 1.1355 and remains about 0.96% above its 50-day EMA and 1.01% above its 100-day EMA.
- Eurozone annual inflation rose to 2.9% in July from 2.8%, while energy inflation accelerated to 10.0% from 8.5%.
- Markets are pricing a 25-basis-point ECB increase on September 9-10 that would lift the deposit facility rate from 2.25% to 2.50%.
- The Fed funds target range remains 3.50% to 3.75%, leaving a 137.5-basis-point midpoint advantage in favor of the dollar before any further ECB tightening.
EUR/USD
The core story in EUR/USD is a market caught between improving euro support and still-formidable dollar yield backing. On the euro side, central-bank messaging has turned more explicit. Minutes from the ECB’s July 22-23 meeting showed policymakers viewed the hold in rates as a pause, not the end of the tightening cycle. That distinction matters because it strengthens the case that September is a live meeting for another increase.
Inflation data helps explain that stance. Eurozone headline inflation reached 2.9% in July, while core inflation rose to 2.5%. The more troubling detail for policymakers is energy, with inflation in that component running at 10.0%. Germany, France, Spain and the Netherlands all showed firmer price pressure in the latest national readings. At the same time, German business sentiment has improved, with the Ifo Business Climate Index rising to 88.8 in August from 86.6 in July, reinforcing the argument that the economy is resilient enough to absorb tighter policy.
For the dollar leg, the picture is less clean. U.S. core PCE inflation was 3.3% year over year, unchanged from June, while headline PCE came in at 3.7%, slightly hotter than expected. Growth data has been softer, but not weak enough to eliminate the possibility of further Fed tightening. That leaves EUR/USD trapped in a narrow band: the ECB looks closer to hiking, but the Fed still offers a higher rate structure and has not clearly pivoted away from hawkish policy.
EUR/USD is holding above 1.1620 because the market sees an ECB that may not be finished tightening, even as the dollar retains a meaningful yield advantage.
Why 1.1620 and 1.1692 matter
From a technical perspective, the pair’s short-term map is unusually clear. Resistance sits at 1.1685, aligned with the late-May high, and then at 1.1692, the 78.2% Fibonacci retracement of the May-June decline. That seven-pip cluster has rejected advances twice, making it the immediate ceiling traders will watch for confirmation of any upside extension.
On the downside, 1.1620 is the first key support, marking prior highs from June 16 and August 17 that have now flipped into a near-term floor. If that level gives way, attention would likely shift to 1.1570 and then the 1.1500 area, where the 50-day simple moving average sits at 1.1508. For now, daily RSI above 65 and a still-positive MACD suggest momentum remains constructive rather than exhausted.
Implications for Investors
For investors with currency exposure, the main issue is relative rates. The Fed’s midpoint rate of 3.625% versus the ECB deposit rate of 2.25% leaves the dollar with a 137.5-basis-point advantage. If the ECB raises rates to 2.50% in September and the Fed holds, that gap narrows to 112.5 basis points. While still dollar-positive, it would reduce the carry advantage materially and could support additional euro resilience.
That said, much of a September ECB move appears to be priced in already. The bigger portfolio question is what comes next. If the ECB signals that September is not the final increase, the euro could find renewed support. If it frames the move as a one-off response to energy-driven inflation, upside may remain capped. On the U.S. side, any shift toward a firmer Fed stance would quickly reassert dollar strength, especially because Fed tightening is less fully priced than ECB tightening.
Investors should also watch the macro backdrop beyond central-bank meetings. Energy prices remain a critical swing factor for Europe, particularly natural gas, which has risen sharply and feeds directly into inflation expectations. In the U.S., labor-market revisions, jobless claims, and policy communication from Jackson Hole could influence expectations for the September 15-16 Fed meeting. For multinational companies, importers, exporters, and euro-hedged portfolios, this means volatility risk remains elevated even if spot trading has looked deceptively calm.
The near-term range in EUR/USD reflects a market waiting for policy confirmation rather than abandoning its trend. If eurozone inflation stays firm and the ECB follows through in September, the pair may test resistance again; if the Fed reclaims the narrative, 1.1620 could come under renewed pressure.