EUR/USD faces persistent downside risk as hawkish Fed bets and Eurozone growth concerns cap rallies, with the pair struggling to hold above the 1.1090 level following an 18-month low.
The pair has fallen to a fresh 18-month low near 1.1066 before a slight rebound to around 1.1090. Fed funds futures repriced hawkishly after the US CPI, with December pricing up to 28.5bps, while the ECB is widely expected to deliver only one final hike in December. With spot below the 20-day EMA at 1.1185 and RSI at 37, rallies are likely to be sold, pointing to further downside.
The Dollar Index posted a fresh 18-month high at 103.08 before retreating slightly to near 102.90. Fed funds futures continued to shift hawkishly after the CPI, with December pricing at 28.5bps, supporting a firm Dollar outlook. Friday's October PPI is the next test of whether US inflation strength persists.
The Euro hit a fresh 18-month low against the Dollar near 1.1066 and remains broadly under pressure. Rabobank notes the ECB could prove reluctant to hike beyond December, with the Governing Council increasingly concerned about the growth outlook. Growing Eurozone uncertainty caps the currency's rate-support story.
The EUR/USD pair remains under pressure after hitting an 18-month low of 1.1066, as markets price in more aggressive Federal Reserve tightening. While the pair saw a minor rebound to 1.1090, the outlook remains bearish with the spot price trading below the 20-day EMA of 1.1185. Investors are now looking toward Friday's US Producer Price Index data to gauge the persistence of inflation strength.
Rising US inflation has pushed traders to expect more Federal Reserve tightening, while the ECB is seen stopping after one final rate hike in December due to Eurozone growth worries, keeping the Euro under pressure.
A daily close above the 20-day EMA at around 1.1185 would be needed to ease the current bearish tone; as long as the pair stays below it, rallies are likely to be sold.
Rising US inflation has lifted expectations of further Federal Reserve rate hikes, with Fed funds futures pricing for the December meeting moving up to 28.5bps.
The Producer Price Index for October, due Friday, will test whether the recent US inflation strength continues.
Markets doubt the ECB's tightening cycle will last beyond one final December hike because of growing economic uncertainty in the Eurozone, while the US Federal Reserve is expected to tighten more aggressively.
The ECB has raised interest rates twice this year, with one more expected in December, which is seen as its last.