Invest in EURUSD up to 1.16400

Yesterday, the market’s attention was glued to inflation reports from the United States and Germany. Much was at stake, but Consumer Price Indices (CPI) in both countries came in as expected, shifting traders’ focus to technical factors and an overall macroeconomic divergence between America and Europe. Let’s take a quick look at the numbers:

In the US, the annual CPI eased to 3.4%, while the core reading settled at 2.5%.

In Germany, year-over-year inflation was recorded at 2.8%.

Since the reports aligned with market projections, no fundamental shock has been seen, and no clear directional momentum has emerged for the pair. Everything had already been priced in.

The EURUSD outlook now hinges on a deep macroeconomic analysis and the policy gap between the two regulators—the Federal Reserve (Fed) and the European Central Bank (ECB).

Unexpected inflation dynamics in the bloc are likely to be a key catalyst for EURUSD over the next few weeks. The region’s largest economy, Germany, has just released a projected yet concerning CPI data. The annual figure for July jumped to 2.8%, while the monthly reading surged by a sharp 0.8%. Such a spike is a clear sign that the economy is under heavy structural price pressures. The ECB is left with little choice but to maintain its hawkish posture. Rate cuts are practically off the table in the coming months, as any premature move could make inflation even more stubborn and uncontrollable. So, what to expect from the ECB in the near term? Higher borrowing costs for longer, defying the previous forecasts of large investment funds. This environment is favorable for the euro.

Across the Atlantic, the picture looks different—a classic case of mirror divergence. Yesterday’s US CPI report showed an anticipated slowdown in annual inflation (headline at 3.4%, core at 2.5%), signaling that the Fed’s tight policy is taking effect. This gradual decline gives the American central bank the green light for a measured easing cycle. The narrowing gap between the US and German bond yields is likely to take the wind out of the greenback’s sails. Meanwhile, major players could shift their attention to the euro and increase their long positions, potentially triggering a solid economy-backed rally in the pair.

The overall recommendation is to buy EURUSD. Profits should be taken at 1.16400. Stop Loss could be set at 1.14585.

Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow you to enter a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.