Euro's life-or-death battle! 1.1730 becomes a "devil's resistance level," with the US-Russia summit and PPI data triggering a forex market storm.
2025-08-15 17:26:09
The euro rebounded slightly against the dollar during the European session on Friday (August 15), but remained under pressure below the 1.1700 mark, a far cry from this week's high of 1.1730. The pair had fallen nearly 0.5% on Thursday, and the current rebound was mainly due to a mild pullback in the US dollar as the market gradually digested the hot Producer Price Index (PPI) data released by the United States on Thursday.
Data showed that U.S. wholesale prices saw their largest increase in three years in July, further confirming the impact of trade tariffs and posing a challenge for the Federal Reserve in policymaking: striking a balance between slowing economic growth and high inflation. Federal Reserve Chairman Powell's speech at the Jackson Hole symposium next week may provide further clues about the path of monetary policy.
In Europe, the final second-quarter GDP figures for the Eurozone confirmed a mere 0.1% quarter-over-quarter growth and 1.4% year-over-year growth, a significant slowdown from the previous readings of 0.6% and 1.5%. More worryingly, the unexpected decline in industrial output underscored the Eurozone's lack of economic momentum and exacerbated downward pressure on the euro.
On Friday's U.S. economic calendar, July retail sales data will be closely watched as markets assess the impact of tariff turmoil on consumer spending. However, the real focus will be the U.S.-Russia summit, where President Trump will hold talks with Russian leader Vladimir Putin on ending the conflict between Russia and Ukraine.
Although the market does not hold high expectations for a breakthrough, any positive signal towards ending the conflict will be welcomed by the market and provide additional support for the euro. Analysts point out that if the talks release a easing signal, it may ease concerns about the European energy crisis and thus boost the eurozone's economic outlook.
Dollar's upward attempts remain limited
While strong U.S. PPI data has dampened market expectations for a sharp rate cut by the Federal Reserve in September, the probability of a 25 basis point rate cut remains fully priced in. This policy expectation continues to boost risk appetite, acting as a headwind for the dollar's rebound.
Data from the Labor Department on Thursday showed that the PPI surged 0.9% month-over-month in July and rose 3.3% year-over-year, far exceeding market expectations of 0.2% and 2.5%. The core PPI also accelerated to 0.9% month-over-month and 3.7% year-over-year growth, significantly higher than analysts' forecasts of 0.2% and 2.9%.
The CME Fed Watch tool showed that expectations of a 50 basis point rate cut in September were largely dashed after the data was released, but the probability of a 25 basis point rate cut remained above 90%, which continued to put pressure on the US dollar. Initial jobless claims fell by 3,000 to 224,000 that week, beating the expected 228,000, temporarily alleviating concerns about a deteriorating labor market and partially offsetting the impact of the PPI data.
The closely watched US retail sales data, due to be released at 8:30 PM Beijing Time, is expected to show a 0.5% month-over-month increase in July (up from 0.6% previously). Excluding auto sales, core retail sales are expected to rise 0.3% month-over-month (up from 0.5% previously).
In the Eurozone, data released Thursday showed that employment in the second quarter grew by just 0.1% month-over-month (up from 0.2% previously), while year-over-year growth remained at 0.7%, in line with expectations. However, industrial output plummeted by 1.3% month-over-month in June, far exceeding the expected 1% decline. Year-over-year growth fell by 0.2% from 3.1% in May, significantly deviating from market expectations for a 1.7% increase, highlighting the weakness in the manufacturing sector.
Technical analysis: EUR/USD remains capped below trendline resistance at 1.1730
EUR/USD maintains a bullish bias in the short term, but bulls' momentum has weakened after repeatedly encountering resistance at 1.1730, a downtrend line from the July 1 high. The 4-hour Relative Strength Index (RSI) is hovering near its 50-day midline and forming a top divergence pattern, which is a warning to bulls.
Although the exchange rate rebounded after finding support at 1.1635 on Thursday, if it fails to break through the above trend line, it may rekindle the confidence of the bears. The initial support below is at 1.1590 (which also converges with the low of August 11 and the high of August 4), and stronger support is seen at the low of August 5, 1.1530, and the high of July 31, 1.1460.
On the upside, the 1.1735 trendline poses a key resistance level – a level that not only suppressed the exchange rate several times in July but also successfully blocked the rise on August 13. A successful break of this resistance level would mark the end of the correction since early July, with the subsequent market targets to be seen, respectively, at the high of 1.1789 on July 24 and the high of 1.1830 on July 1.
At 17:02 Beijing time, the euro was trading at 1.1680/81 against the US dollar.
Data showed that U.S. wholesale prices saw their largest increase in three years in July, further confirming the impact of trade tariffs and posing a challenge for the Federal Reserve in policymaking: striking a balance between slowing economic growth and high inflation. Federal Reserve Chairman Powell's speech at the Jackson Hole symposium next week may provide further clues about the path of monetary policy.
In Europe, the final second-quarter GDP figures for the Eurozone confirmed a mere 0.1% quarter-over-quarter growth and 1.4% year-over-year growth, a significant slowdown from the previous readings of 0.6% and 1.5%. More worryingly, the unexpected decline in industrial output underscored the Eurozone's lack of economic momentum and exacerbated downward pressure on the euro.
On Friday's U.S. economic calendar, July retail sales data will be closely watched as markets assess the impact of tariff turmoil on consumer spending. However, the real focus will be the U.S.-Russia summit, where President Trump will hold talks with Russian leader Vladimir Putin on ending the conflict between Russia and Ukraine.
Although the market does not hold high expectations for a breakthrough, any positive signal towards ending the conflict will be welcomed by the market and provide additional support for the euro. Analysts point out that if the talks release a easing signal, it may ease concerns about the European energy crisis and thus boost the eurozone's economic outlook.
Dollar's upward attempts remain limited
While strong U.S. PPI data has dampened market expectations for a sharp rate cut by the Federal Reserve in September, the probability of a 25 basis point rate cut remains fully priced in. This policy expectation continues to boost risk appetite, acting as a headwind for the dollar's rebound.
Data from the Labor Department on Thursday showed that the PPI surged 0.9% month-over-month in July and rose 3.3% year-over-year, far exceeding market expectations of 0.2% and 2.5%. The core PPI also accelerated to 0.9% month-over-month and 3.7% year-over-year growth, significantly higher than analysts' forecasts of 0.2% and 2.9%.
The CME Fed Watch tool showed that expectations of a 50 basis point rate cut in September were largely dashed after the data was released, but the probability of a 25 basis point rate cut remained above 90%, which continued to put pressure on the US dollar. Initial jobless claims fell by 3,000 to 224,000 that week, beating the expected 228,000, temporarily alleviating concerns about a deteriorating labor market and partially offsetting the impact of the PPI data.
The closely watched US retail sales data, due to be released at 8:30 PM Beijing Time, is expected to show a 0.5% month-over-month increase in July (up from 0.6% previously). Excluding auto sales, core retail sales are expected to rise 0.3% month-over-month (up from 0.5% previously).
In the Eurozone, data released Thursday showed that employment in the second quarter grew by just 0.1% month-over-month (up from 0.2% previously), while year-over-year growth remained at 0.7%, in line with expectations. However, industrial output plummeted by 1.3% month-over-month in June, far exceeding the expected 1% decline. Year-over-year growth fell by 0.2% from 3.1% in May, significantly deviating from market expectations for a 1.7% increase, highlighting the weakness in the manufacturing sector.
Technical analysis: EUR/USD remains capped below trendline resistance at 1.1730
EUR/USD maintains a bullish bias in the short term, but bulls' momentum has weakened after repeatedly encountering resistance at 1.1730, a downtrend line from the July 1 high. The 4-hour Relative Strength Index (RSI) is hovering near its 50-day midline and forming a top divergence pattern, which is a warning to bulls.
Although the exchange rate rebounded after finding support at 1.1635 on Thursday, if it fails to break through the above trend line, it may rekindle the confidence of the bears. The initial support below is at 1.1590 (which also converges with the low of August 11 and the high of August 4), and stronger support is seen at the low of August 5, 1.1530, and the high of July 31, 1.1460.
On the upside, the 1.1735 trendline poses a key resistance level – a level that not only suppressed the exchange rate several times in July but also successfully blocked the rise on August 13. A successful break of this resistance level would mark the end of the correction since early July, with the subsequent market targets to be seen, respectively, at the high of 1.1789 on July 24 and the high of 1.1830 on July 1.
At 17:02 Beijing time, the euro was trading at 1.1680/81 against the US dollar.
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