Euro steadies above 1.1600 ahead of ECB rate decision, US PPI data

The EUR/USD exchange rate settled near 1.1600 before the European Central Bank's interest rate decision and US Producer Price Index (PPI) figures were released. Traders opted to remain on the sidelines until the conclusions of the ECB gathering and the US PPI announcement. The ECB is anticipated to hike interest rates on Thursday, for the second time this year, due to mounting energy costs stemming from the ongoing US-Iran conflict.

Forecasts anticipate a 25 basis points (bps) increase to 2.5%, with Eurozone inflation exceeding 3% in August. Alessia Berardi, head of global macroeconomics at Amundi Investment Institute, asserted that a September rate hike is virtually certain. Inflation is still high and is expected to persist over the next few months before gradually decreasing in the second half of next year, according to Berardi.

Traders will scrutinize the US PPI data on Thursday, looking for insights into the US interest rate trajectory. The headline PPI is expected to show a year-over-year increase of 5.3% in August, up from 4.7% the previous month. Meanwhile, the core PPI is forecasted to rise by 4.6% in August, compared to 4.2% in July. Any evidence of heightened US inflation could strengthen the US Dollar (USD) and exert a headwind on the EUR/USD pair in the near term.

Scotiabank's strategists noted that the Euro was stagnant during early North American trading hours, remaining unchanged against the USD after a previous surge to a fresh one-week high. They emphasized that fundamentals continue to support the EUR, as ECB rate expectations have strengthened in response to the recent surge in oil prices, reflecting the ECB's heightened sensitivity to energy price risks.

Looking ahead to this week's policy decision, Scotiabank's strategists forecast a 25bps rate hike at Thursday's meeting, with another 25bps priced in for December. They foresee a hawkish stance from the ECB, as President Lagarde unveils the latest forecast and highlights persistent concerns about upside risks. In the daily chart, EUR/USD exhibits a modest bullish near-term bias, hovering just above the Bollinger middle band (20-day simple moving average) and remaining above the 100-day SMA (around 1.1560).

This configuration suggests that dips are supported within the recent consolidation range, with the Relative Strength Index (14) at approximately 58, indicating steady but not extreme upside momentum within the prevailing range. The immediate resistance level lies at the Bollinger upper band near 1.1700, where prior attempts have typically faltered.

A clear break above this barrier could pave the way for a more pronounced extension of the recovery. Conversely, support is provided by the Bollinger middle band near 1.1625, followed by the 100-day SMA (1.1560) and the lower Bollinger band (around 1.1555), a closely clustered zone that would act as a critical support level if breached.