EUR/USD Overview. September 2. EU Inflation: In Line with Forecasts, but Still Significant

The EUR/USD currency pair traded quite calmly on Tuesday. It was only in the second half of the day that we observed more or less interesting movements, although traders had the right to expect high volatility throughout the day. However, as often happens, expectations did not match reality. Or they matched but not completely.

Starting with the key report of the day — the European inflation report. This report determines the fate of the European Central Bank's monetary policy, and recall that the ECB is significantly closer to its second monetary policy tightening than the Federal Reserve is to its first.

Of course, the market has as many opinions as there are traders. Some believe that the Fed will indeed raise the key interest rate in September. But what basis do they have for such conclusions? Recall that for most of the summer, the market anticipated a rate hike by the Fed in September. Then, after seeing the August reports on U.S. GDP, the labor market, and inflation, the market abandoned its hawkish expectations. Then came Kevin Warsh's speech at Jackson Hole, and the market began to believe in a September tightening once again. So it turns out that Warsh's recent speech was the starting point for a new wave of "hawkish" calls. But let's ask: what kind of hawkishness did Warsh communicate to the markets? Once again, he lamented high inflation and promised to tackle it? Donald Trump also made many promises, both before and after becoming the President of the United States. It might not need reiterating that even 20% of those promises were not fulfilled. And Warsh is a protege of Trump, which means he indirectly supports the current president's policy. Therefore, we would not be surprised if Warsh continues to discuss high inflation for another six months, with the Fed taking no concrete measures.

Returning to European inflation and the ECB's monetary policy, inflation in the Eurozone rose to 3.3% in August. This is a relatively high figure, but it is exactly what traders expected. Thus, the market's weak reaction to this important report is explained by this reason. In our view, the ECB could decide at its September meeting, as the main issue remains geopolitics and the Strait of Hormuz. If the conflict miraculously ends soon, oil will flood the markets, and inflation will decline. Unfortunately, no one knows when the conflict between the U.S. and Iran will end, but the ECB is unlikely to take hawkish measures unless absolutely necessary. We do not rule out the ECB taking a pause to ensure inflation continues to move away from the target level.

What does this mean for the euro? The euro has been rising over the past month, not due to the ECB's monetary policy factor. It is the dollar that is falling due to developments in the U.S. and in line with global trends. Thus, even if the ECB refrains from tightening in September, we believe the pair's medium-term prospects will not change. We continue to anticipate growth for the European currency.

The average volatility of the EUR/USD currency pair over the last 5 trading days, as of September 2, is 44 pips, which is characterized as "low." We expect the pair to move between 1.1544 and 1.1632 on Wednesday. The upper channel of the linear regression has turned upward, indicating the beginning of an upward trend. The CCI indicator has entered oversold territory, signaling a possible end to the correction.

The EUR/USD pair continues its upward trend on the 4-hour timeframe, which may signal the start of a new phase in the global upward trend on higher timeframes. The global fundamental backdrop for the dollar remains negative, but in 2026, first geopolitics and then the Fed's hawkish stance provided strong support for the American currency. However, these factors are no longer supporting the dollar at this time.

If the price is below the moving average, short positions can be considered on a corrective basis, targeting 1.1544 and 1.1536. Above the moving average line, long positions remain relevant with targets of 1.1658 and 1.1719.