PPI excitement — What ECB, FedWatch and EUR/USD are digesting

PPI cooled in August, reading +0.3% M/M and +2.6% Y/Y, down from July’s +0.9% and +3.3% readings.

The report suggests that pipeline inflation pressures are easing more quickly than expected. That matters because it feeds directly into the debate over how quickly the Federal Reserve can pivot to rate cuts. With PPI surprising on the downside, the path for a rate cut seems more likely.

This shift is significant for EUR/USD because the European Central Bank has been slower to declare victory over inflation. If the Fed is seen cutting first while the ECB stays cautious, the policy gap narrows in the euro’s favour. That dynamic helps explain why the pair has remained bid even as it grinds into long-standing resistance.

EUR/USD weekly grind into resistance

On the weekly timeframe, EUR/USD is now testing the $1.1760 / $1.1780 zone. This level carries weight: it marks the breakdown point from March 2021 and coincides with the 78.6% fib retracement of the 2021–22 decline. It has acted as a ceiling before, and the market is now probing it again.

A sustained weekly close above $1.1760 would signal a breakout, opening the path toward $1.1850–$1.1900 and potentially putting $1.20 back into play.

Failure to clear the level would keep EUR/USD capped and raise the risk of a pullback toward $1.1457 (Value Area High since 2021) and, if U.S. CPI surprises to the upside, even $1.1350 (High volume node near anchored vWAP).

Momentum indicators on the weekly still have room. RSI is firm but not stretched or printing a bearish divergence, at least not yet. If we push higher, watch for a potential bearish divergence and the creation of a rising wedge pattern.

The bigger picture

The softer PPI print has set the tone ahead of Thursday’s CPI release. It has raised confidence in a Fed cut and tilted sentiment toward euro strength, but it hasn’t delivered a breakout yet. The technical picture shows that the euro is pressing against a two-year ceiling, and only CPI will decide whether that resistance finally gives way.