No major events expected today.

The EUR/USD pair is climbing to yearly highs, reaching 1.1040 in early European trading on Monday. The decline in the US dollar (USD), amid rising speculation that the Federal Reserve (Fed) will cut interest rates in September, is providing some support to the main pair. Traders will closely watch Fed Chair Jerome Powell’s speech on Friday for additional clues on potential rate cuts.

San Francisco Fed President Mary Daly stated on Sunday that recent US economic data has given her “greater confidence” that inflation is under control, adding that it is time to consider adjusting borrowing costs from the current range of 5.25-5.5%. Meanwhile, Chicago Fed President Austan Goolsbee emphasized on Sunday that US central bank officials should be cautious about maintaining restrictive policy longer than necessary. The dovish comments from Fed policymakers are putting pressure on the US dollar and creating a tailwind for EUR/USD.

Investors are now pricing in about a 70% chance of a quarter-point Fed rate cut in September, while a minority expect a half-point cut. Morningstar’s Chief US Economist Preston Caldwell noted that the CPI report “provides additional support for an aggressive Fed rate cut starting in September.” Caldwell believes that initially, the rate will be cut by 25 basis points, bringing the Fed rate down to 5.00-5.25%.

The euro (EUR) remains strong as markets expect the European Central Bank (ECB) to gradually lower interest rates. ECB President Christine Lagarde emphasized at the latest press conference that policymakers “are not committed to a specific path for rate cuts.” The consensus is that they will stick to a data-dependent and meeting-by-meeting approach.

Recommendations: Primarily trade with Buy orders from the current price levels.