The EURUSD pair has dropped into an important support area as traders await the US CPI report. Recently, the market reacted to weaker Non-Farm Payrolls (NFP) data, shifting expectations from 35 basis points (bps) of easing to 57 bps by year-end. Positive data could prompt Fed Chair Powell to consider a rate cut in September.

Focus on US CPI

All eyes are on the US CPI report, which may impact decisions by the Federal Reserve. Some strength in the dollar was noted, likely because traders are positioning themselves ahead of this key event. Current statements from Fed officials indicate that a rate cut is likely unless the inflation data is unexpectedly high or the September NFP figure is strong. Regarding the euro, the US-EU trade deal has established tariffs at 15%, and European Central Bank (ECB) members are currently neutral regarding rate cuts. The market now anticipates only a modest easing of 11 bps by year-end, indicating that a rate cut is unlikely. On the daily chart, a significant resistance level of 1.1575 was surpassed but has since pulled back as the market awaits the CPI results. Buyers are hoping for a rally toward 1.1750, while sellers are looking for a decline to new lows. On the 4-hour chart, the 1.1590 support level is essential, with both buyers and sellers strategically positioned. The 1-hour chart offers little additional insight. Key upcoming data includes the US CPI report, followed by Producer Price Index (PPI), Jobless Claims, Retail Sales, and Consumer Sentiment. The comments from Fed officials will be especially important after the CPI data release.

Current Market Sentiment

As of today, August 12, 2025, the EURUSD is near a critical support zone around 1.1590 ahead of the US inflation data. Traders’ heightened anticipation has pushed the implied volatility on one-week EURUSD options up by over 15% in recent days. This indicates that significant price movement is expected, making strategies like straddles or strangles beneficial for capitalizing on potential breakouts. The weak US jobs report for July 2025, which added only 155,000 jobs instead of the expected 190,000, has notably shifted market sentiment. This has reinforced expectations of more than 50 basis points in Fed cuts by year-end. If today’s US CPI reading is at or below the consensus of 0.2% month-over-month, it will likely confirm expectations for a September rate cut and could lead to a rally towards the 1.1750 resistance. Conversely, a surprising inflation increase would challenge the dovish sentiment that’s been growing since early August. The market would need a significant beat on expectations for traders to rethink a September cut; thus, managing risk is crucial. Buying protective put options with a strike price below the 1.1575 support level offers a way to hedge long positions against a sudden dollar rebound. Looking ahead, the Jackson Hole Symposium at the end of August will be a significant event. Here, we expect Fed Chair Powell to clearly outline his plans for the September meeting. This timeline suggests that options expiring in late September may capture ongoing volatility as the market reacts to this week’s data and prepares for the Fed’s formal announcement. The ECB’s neutral position, with members showing little inclination to cut rates after their June 2025 move, creates a clear divergence in policy compared to the Fed. This scenario resembles 2019, when a proactive Fed and a hesitant ECB resulted in prolonged dollar weakness. This historical context suggests that any temporary dip in EURUSD caused by dollar strength could present a buying opportunity for a longer-term trend. Create your live VT Markets account and start trading now.

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