EUR/USD Forecast: Fed’s Tightening Keeping Euro Gains Capped

• There is a 70% chance that the Federal Reserve will raise rates by 75bps.
• Markets expect US CPI data to show an acceleration in core inflation.
• Italy’s outlook is negative after Draghi’s resignation.

Today’s EUR/USD forecast is bearish as markets reevaluate Fed rate hikes in the near future. The dollar remained stable after surprise payrolls data from the United States dispelled recession fears while supporting the need for additional enormous rate hikes.

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The two-year yield increased by 20 basis points on Friday as markets rapidly moved to price in a 70 percent likelihood that the Federal Reserve will raise rates by 75 basis points in September. This further inverted the yield curve.

The game-changing figures only increased the stakes for next Wednesday’s release of the July consumer price index in the United States, which may show a slowdown in growth but a likely acceleration in core inflation.

“Despite sluggish growth and an expected slide to a 0.2% m/m July CPI gain, the Fed will likely raise policy rates 75 bps at its September meeting,” said Bruce Kasman, head of economic research at JPMorgan.

Around $1.0182, the euro was having trouble and was not far from chart support at $1.0095.

The announcement that Global rating agency Moody’s had changed Italy’s outlook from stable to negative due to Prime Minister Mario Draghi’s resignation did not benefit the single currency.

“Risks to Italy’s credit profile have been accumulating more recently because of the economic impact of Russia’s invasion of Ukraine and domestic political developments, both of which could have material credit implications,” Moody’s said.

EUR/USD Key events today

EUR/USD investors will not receive significant news releases from the US or Europe today. For this reason, the pair is likely to consolidate as investors await US inflation data.

EUR/USD technical forecast: Bears yet again failed to break 1.01489

Looking at the 4-hour chart, we see a strong support level at around 1.01489. This level has stopped bears from pushing the price lower on several occasions. The price has bounced off this level, going back above the 30-SMA. This move is a sign that bulls have taken over.

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With the RSI also favoring bullish momentum, the price will likely retest the August 1 resistance at 1.02863. The price will start trending when it breaks out of this range.

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