EUR/USD Price Forecast: Approaches YTD peak as Fed rate cut bets weigh on USD ahead of US PPI

The EUR/USD pair advances to its highest level since April 22 on Thursday as trade-related uncertainties and rising bets that the Federal Reserve (Fed) will cut interest rates further in 2025 weigh heavily on the US Dollar (USD). A positive outcome from the high-staked US-China trade talks in London reduced some trade worries, though investors remain on edge on the back of US President Donald Trump's rapidly shifting stance on tariffs.

Trump flared up trade tensions on Wednesday and told reporters that he would be sending out letters to notify trading partners about the new unilateral tariff rates within the next one to two weeks. Trump added that he would clearly outline the terms being offered, leaving other countries with the choice to accept or reject them. The announcement comes ahead of the July 9 deadline for sweeping “liberation day” tariffs and adds a layer of uncertainty, reviving US recession fears. Moreover, dovish Federal Reserve (Fed) expectations undermine the buck and lend support to the EUR/USD pair.

In fact, traders are now pricing in a nearly 70% chance that the US central bank will resume its rate-cutting cycle in September. The bets were reaffirmed by softer US consumer inflation figures released on Wednesday. The US Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index (CPI)  rose 0.1% in May and the 2.4% annualized pace compared to 2.3% in the previous month, missing consensus estimates for a reading of 2.5%. Meanwhile, the core gauge, which excludes volatile food and energy prices, climbed 2.8% during the reported month, matching April's increase.

Apart from this, a relatively hawkish signal from the European Central Bank (ECB) President Christine Lagarde earlier this month, saying that interest rates are nearing their neutral level, continues to underpin the shared currency. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the upside. Traders now look forward to Thursday's US economic docket – featuring the release of the Producer Price Index and the usual Weekly Initial Jobless Claims. The data might influence the USD price dynamics and produce short-term trading opportunities.

EUR/USD 4-hour chart

Technical Outlook

The overnight breakout through a short-term trading range barrier and a subsequent move beyond the 1.1500 psychological mark favor the EUR/USD bulls. Adding to this, positive technical indicators on the daily chart validate the near-term constructive outlook. However, the Relative Strength Index (RSI) on the 4-hour chart is flashing slightly overbought conditions. This makes it prudent to wait for some consolidation or a modest pullback before positioning for any further intraday appreciating move.

That said, any corrective slide below the 1.1500 psychological mark might now be seen as a buying opportunity near the trading range resistance breakpoint, around the 1.1440 zone. This should help limit the downside near the 1.1400 round figure, which is followed by the 1.1375-1.1370 horizontal support. A convincing break below the said support levels might shift the near-term bias in favor of bearish traders and pave the way for deeper losses.

On the flip side, the 1.1570-1.1575 region, or the year-to-date high touched in April, could act as an immediate hurdle. Some follow-through buying, leading to a subsequent strength beyond the 1.1600 round figure for the first time since November 2021, would set the stage for an extension of the EUR/USD pair’s recent well-established uptrend witnessed over the past four months or so.