Euro holds gains near seven-week highs as economic sentiment improves

The Euro (EUR) ticks higher against a softer US Dollar (USD) on Monday, with the EUR/USD pair trading at the 1.1560 area at the time of writing, consolidating gains a few pips below seven-week highs at 1.1773. Fading hopes that the US Federal Reserve (Fed) will hike interest rates in September are hurting the Greenback, while, in Europe, bright investors' confidence figures have provided additional support to the Euro.

Data released by the Sentix research institute on Monday revealed that investors' confidence in the Eurozone economy improved sharply in August, reaching positive levels, with a 0.9 reading, for the first time since February. These numbers confirm a steady recovery, from -.3.1 in July and -13.4 in June.

The greatest improvement has been seen at the current economic conditions sub-Index, which rose by 6.8 points, while the economic expectations improved by a more moderate 1.0. The expectations about the German economy rose by 2.5 points to 6.0, also the highest level since February, while the Global Aggregate rose by 1.4 points, to 14.7, suggesting that economic recovery expectations are broad-based.

The Euro is drawing some support from a weaker US Dollar, as the negative surprise posted by the US Nonfarm Payrolls data has dampened hopes of immediate Federal Reserve (Fed) rate hikes further. This is offsetting concerns about the economic consequences of higher Oil prices for now, as the status of the Strait of Hormuz remains highly uncertain with sea traffic through the key waterway practically blocked.

US CPI data will be the highlight of the week

The US calendar is thin on Monday, and the focus is on the US Consumer Price Index (CPI) figures for July, due next Wednesday, for a better assessment of the Fed's near-term rate path. The market consensus points to a mild slowdown of consumer prices to a 3.4% year-on-year rate, from 3.5% in June. The Core CPI is also expected to have eased, to a 2.5% yearly growth, from 2.6% in the previous month.

Analysts at ING see the EUR/USD "firmly dominated by the USD side of the equation,” with upcoming US inflation data set to play a pivotal role. In their view, “a softer US CPI print would increase the chances of a break above 1.160 already this week,” with the “next important resistance beyond that” identified as “the 200-day moving average at 1.1630.”