EUR/USD continues to hold firm above the 1.1800 level on Tuesday, easing slightly after briefly retesting its year-to-date high at 1.1821. Despite the minor pullback, the pair remains well supported, driven by continued softness in the US Dollar (USD) ahead of the Federal Reserve’s policy decision on Wednesday.
At the time of writing, EUR/USD is trading near 1.1810, still up around 0.40% on the day, as traders weigh the impact of strong US economic data against expectations for Fed easing.
US Retail Sales Surprise to the Upside
The latest US Retail Sales report delivered a clear signal of consumer resilience. Retail Sales rose 0.6% MoM in August, sharply above the 0.2% forecast. July’s figure was also revised higher, from 0.5% to 0.6%, adding to the upbeat narrative.
More importantly:
- Retail Sales excluding Autos jumped 0.7%, beating expectations of 0.4%.
- The Retail Control Group — a key input into GDP — also rose 0.7%, exceeding forecasts of 0.4%.
- On an annual basis, Retail and Food Services Sales grew 5.0%, up from July’s revised 4.1%.
These figures suggest that US consumers remain active despite tighter credit conditions and persistent inflation, easing fears of a slowdown heading into Q3.
Fed Rate Cut Still Expected, But Trajectory Uncertain
Markets continue to fully price in a 25 basis point rate cut at the Fed’s policy meeting tomorrow, with the CME FedWatch Tool showing a 95% probability. However, today’s strong retail numbers may dampen expectations for a more aggressive or sustained easing path.
All eyes now turn to:
- The Fed’s updated Summary of Economic Projections
- The Dot Plot, showing rate forecasts through 2026
- Chair Jerome Powell’s press conference, which could clarify how far and how fast the Fed is willing to cut
EUR/USD: Still Supported, but Upside May Face Hurdles
While the Euro eased slightly from session highs, its broader uptrend remains intact. The pair has been supported by:
- Weakness in the USD
- Lower Treasury yields
- Expectations of Fed easing
However, with the Fed decision looming and strong US data complicating the policy outlook, EUR/USD may face resistance near 1.1820, while the 1.1800 level now acts as near-term support.
Euro Performance vs. Major Currencies
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| EUR | +0.41% | — | +0.10% | +0.12% | +0.26% | +0.42% | +0.39% | -0.13% |
The Euro was strongest against the Australian Dollar and also posted solid gains against the Canadian Dollar and Pound.
Bottom Line
EUR/USD is holding above key support, with momentum still favoring the upside. However, strong US Retail Sales have temporarily curbed the Dollar’s downside and may keep the Euro’s rally in check until the Fed’s policy direction becomes clearer. Traders should brace for potential volatility on Wednesday as the central bank unveils its updated forecasts and Powell takes the podium.