EUR/USD Forecast: ECB to Hike 50bps Despite Recession Woes

EUR/USD Forecast: ECB to Hike 50bps Despite Recession Woes

  • According to economists, the ECB will raise rates by 50bps at the next meeting.
  • Eurozone inflation is at 10.6%, more than five times the ECB’s target.
  • There is a 78% chance that the eurozone is headed for a winter recession.

Today’s EUR/USD forecast is bullish. Despite the likelihood that the Eurozone is entering a recession, the European Central Bank will continue to tighten monetary policy by increasing its deposit rate by 50 basis points next month out of concern that rapid price growth is becoming entrenched.

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Inflation in the region has skyrocketed, exceeding the ECB’s 2.0% target by more than five times last month, at 10.6%. This is due to rising energy costs in the wake of Russia’s invasion of Ukraine and the disruption of supply chains.

After first claiming that rising inflation was temporary, the central bank started hiking interest rates in July, much later than most of its significant counterparts. It has since increased its benchmark rate by 200 basis points.

“More resilient economic conditions, the stickiness of inflation, potential spillovers onto inflation expectations, and longer-lasting wage pressures could force the ECB to keep tightening for longer into 2023 than we currently predict,” said Ken Wattret, vice president of economics at S&P Global Market Intelligence.

Recent private surveys have strengthened the case that the EU is headed for a winter recession. When asked to predict the likelihood of one occurring within a year, analysts responded with a median answer of 78%, up from 70% in October.

EUR/USD key events today

From the eurozone, investors are expecting PMI data. The US will release reports, including building permits, core durable goods orders, new home sales, initial jobless claims, and the FOMC minutes.

EUR/USD technical forecast: Weak bulls lacking follow-through

EUR/USD foecast

Looking at the 4-hour chart, we see the price trading close to 30-SMA and the RSI above 50. This shows that bulls are stronger. The price has exceeded a strong resistance zone comprising the 30-SMA and the 1.0301 key level. The price needs to trade far beyond this zone for the bullish move to continue and take out the 1.0450 resistance.

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However, if the price fails to go beyond the resistance zone, bears might return to continue the bearish trend by making a lower high and a lower low. The price will likely fall to the 1.0100 support level if bears take over.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.