EUR/USD remained close to 1.15 after eurozone inflation increased in July, reinforcing expectations that the European Central Bank may raise interest rates again. The euro’s latest reference rate stood near $1.1476, while traders balanced tighter European policy expectations against a firm US dollar and elevated Treasury yields.
In this article, experts at Sylverix examine whether EUR/USD can extend its recovery toward 1.1600 or whether renewed dollar strength could return the pair to support.
Eurozone Inflation Moves Higher
Headline inflation rose to 2.9% in July, up from 2.8% in June. Core inflation increased to 2.5%, while services inflation reached 3.3%. Higher energy costs contributed to the rise.
The increase strengthens the argument for another ECB rate increase, even though policymakers still have another inflation report before September’s meeting.
Markets have already priced in further tightening as the central bank tries to prevent energy-driven inflation from spreading.
Stronger Growth Gives the ECB More Room
The eurozone economy expanded by 0.4% during the second quarter, exceeding expectations and reducing immediate recession concerns.
That growth gives policymakers more room to focus on inflation without fearing that a modest increase will immediately push the region into contraction.
Firmer growth and higher inflation provide a more supportive interest-rate backdrop for the euro.
However, household demand and investment remain vulnerable to expensive energy and borrowing costs.
The Deviation Channel Shows a Gradual Recovery
The first chart places EUR/USD candlesticks around a 20-period moving average and standard-deviation boundaries.
The outer lines show when price has moved unusually far from its recent average.
EUR/USD is trading in the upper half of the channel, suggesting buyers retain a modest short-term advantage.
Holding above the moving average would keep 1.1550 and 1.1600 in focus. A close beneath the lower boundary would suggest the recovery is weakening.
Image 1: EUR/USD Candlestick Chart With Standard-Deviation Channel
Resistance Appears Near 1.1550
The first important resistance area sits around 1.1550. A sustained break above this level could expose 1.1600, followed by 1.1650.
A daily close above 1.1600 would confirm that the euro is building a broader recovery against the dollar.
That move would become more likely if ECB officials support further tightening or US data reduces expectations of additional Federal Reserve increases.
Support Begins Around 1.1450
Initial support is positioned near 1.1450. Holding above this area would preserve the upward structure and leave another test of 1.1550 possible.
A break below 1.1450 could expose 1.1400, followed by 1.1350.
A sustained decline beneath 1.1400 would weaken the recovery and return control to dollar buyers.
The KST Indicator Remains Positive
The second chart uses the Know Sure Thing oscillator, or KST.
KST combines several rates of change to measure momentum across different timeframes.
The indicator remains above zero and close to its signal line, showing that positive momentum continues but is not especially strong.
A wider move above the signal line would support a challenge of 1.1550 and 1.1600. A bearish crossover could point to a decline toward 1.1450.
Image 2: EUR/USD Four-Hour Chart With Know Sure Thing Oscillator
The Dollar Still Benefits From Higher Yields
US Treasury yields remain an important obstacle for the euro. The 10-year yield recently moved close to 4.70%, while the two-year yield stood near 4.28%. Those levels continue to make dollar assets attractive to international investors.
EUR/USD may struggle to sustain a breakout while US yields remain high.
Softer American labor or inflation data could reduce rate expectations and make it easier for the euro to advance.
Energy Prices Create a Mixed Effect
Higher oil prices are pushing eurozone inflation upward, strengthening expectations of ECB tightening.
At the same time, Europe remains a major energy importer. Expensive fuel raises costs for households and businesses, potentially weakening growth.
Energy inflation may initially support the euro through higher rate expectations, but prolonged pressure could eventually harm the economy.
The market must judge whether the policy effect or the growth effect will dominate.
ECB Guidance Remains Important
The ECB kept rates unchanged at its latest meeting but left the door open to another increase in September.
A clear signal that September remains a live option would provide additional support for EUR/USD.
More cautious language would reduce the euro’s rate advantage and increase the risk of another decline.
Trading Implications
EUR/USD retains a cautiously bullish outlook while trading above 1.1450 and in the upper half of its deviation channel.
A confirmed move above 1.1550 could expose 1.1600 and 1.1650.
A break below 1.1450 would weaken immediate momentum, while a sustained decline beneath 1.1400 could shift attention toward 1.1350.
Higher eurozone inflation and firmer ECB guidance would support the euro. Rising US yields and weaker European growth would favor the dollar.
Conclusion
EUR/USD is holding near 1.15 as higher eurozone inflation strengthens expectations of another ECB rate increase.
Resistance is positioned near 1.1550, 1.1600, and 1.1650. Support can be found around 1.1450, 1.1400, and 1.1350.
The short-term structure remains constructive, but the pair still needs to clear 1.1550 before the recovery becomes more convincing.