EUR/USD Forecast: Euro Rebounds From 1.1112 After US CPI

The Consumer Price Index increased from 0.4% to 0.6% month-on-month and accelerated from 3.4% to 3.7% year-on-year, exceeding forecasts of 3.6%. Meanwhile, core inflation remained at 0.3% month-on-month instead of the expected slowdown to 0.2%, while the annual reading rose from 2.4% to 2.6%, compared with forecasts of 2.5%. The acceleration was primarily driven by a 9.1% increase in gasoline prices, while the overall motor fuel index rose by 9.3%. Analysts note that inflationary pressure is also spreading beyond the energy sector: prices for nonalcoholic beverages increased by 0.9%, while those for fruits and vegetables rose by 0.5%. Following the release, the US dollar strengthened as the probability of further Federal Reserve monetary tightening in October increased. However, subsequent statements from Federal Open Market Committee (FOMC) officials highlighted the lack of a unified position within the regulator. San Francisco Fed President Mary Daly stated that additional interest rate increases would likely be necessary, although there was no urgent need to act. Fed Vice Chair for Supervision Michelle Bowman added that policymakers still had time to assess economic conditions before making further decisions. Meanwhile, Chicago Fed President Austan Goolsbee described the latest inflation data as concerning, particularly the acceleration of price growth in the services sector, and emphasised that persistently high inflation must not become entrenched. According to market expectations reflected in the CME FedWatch Tool, the probability of an October interest rate increase rose following the inflation release but subsequently eased to approximately 29.0%. Most analysts continue to expect the Federal Reserve to maintain a hawkish stance, with another potential rate increase in December remaining under consideration.

The euro is strengthening in the short term after recovering from its recent low near 1.1112, while the former trading area around 1.1230 (Murray level [0/8]) remains a reference point for a potential recovery. Nevertheless, the European Central Bank (ECB) may continue to adopt a cautious approach to monetary policy as officials assess whether elevated energy prices are generating broader second-round inflationary effects across the eurozone economy. As a result, the potential for a further decline in the EUR/USD pair remains.

As discussed in our previous EUR/USD forecast, stronger-than-expected US inflation continues to support the dollar, while the euro remains vulnerable to diverging monetary policy expectations and ongoing economic uncertainty in the eurozone.

Support and resistance levels

Following a sustained break below 1.1169 (Murray level [–1/8]), the price could decline toward 1.0986 (Murray level [–2/8], W1) and 1.0850 (61.8% Fibonacci retracement). However, if the pair breaks above the middle Bollinger Band at 1.1352 (Murray level [2/8]), an upward movement may resume toward 1.1535 (Murray level [5/8], 23.6% Fibonacci retracement), 1.1718 (Murray level [8/8], upper boundary of the descending channel) and 1.1840 (Murray level [+2/8]).

Technical indicators maintain a sell signal: Bollinger Bands are turning downward, the MACD histogram continues to expand in negative territory, while Stochastic has turned upward from the oversold zone, suggesting that a limited upward correction remains possible.

Resistance levels: 1.1352, 1.1535, 1.1718, 1.1840.

Support levels: 1.1169, 1.0986, 1.0850.

EUR/USD trading scenarios and exchange rate forecast

Short positions may be opened below 1.1169, with targets at 1.0986 and 1.0850 and a stop-loss at 1.1270. Estimated implementation period: 5–7 days.

Long positions may be opened above 1.1352, with targets at 1.1535, 1.1718 and 1.1840 and a stop-loss at 1.1230.