EUR/USD Forecast: Hawkish Fed Pushing Price Below Parity

EUR/USD Forecast: Hawkish Fed Pushing Price Below Parity

  • Some investors are expecting a 100bps rate hike from the ECB.
  • The ECB is set to raise rates next year to control inflation.
  • The ECB believes demand is driving inflation in Europe.

Today’s EUR/USD forecast is slightly bearish as markets expect the Fed to deliver a 75bps rate hike on Wednesday. Some investors are preparing for a 100bps rate hike after the positive US inflation data.

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In Europe, senior economist Philip Lane, who spoke on Saturday, said the European Central Bank might continue to hike interest rates next year to curb the demand that significantly contributes to sky-high inflation.

“We do think that this is going to dampen demand. We’re not going to pretend this is pain-free,” Lane told a conference. “Demand is now a source of inflation pressure. It was not six or nine months ago like it is now.”

“At 0.75%, the ECB’s deposit rate is still too low as it continues to stimulate the economy, so the ECB’s job is not yet done,” Lane added.

For months, Lane had claimed that the shock brought on by high energy costs was the main driver of the rising inflation. Since such supply shocks are largely uncontrollable, the ECB was one of the last major central banks to raise rates.

But due to strong consumer demand, inflation has already spread out and begun to affect many aspects of life.

EUR/USD key events today

Investors will be keen to listen to speeches from ECB members, including Eduardo Fernandes-Bollo, Luis De Guindos, and Enria. These speeches will likely contain information on future monetary policy.

EUR/USD technical forecast: Battle between bears and bulls around parity

EUR/USD forecast

Looking at the 4-hour chart, we see the price trading in a sideways move, close to the 30-SMA. This is a sign that the price is consolidating. The 1.0000 psychological level has stopped the price, and buyers and sellers currently have almost equal strength. The price will only start moving up or down when one side becomes much stronger.

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The RSI trades slightly below 50, showing bears have more momentum than bulls. If the bears win this battle, the price will break below the 30-SMA and plunge toward the 0.99014 support level. However, if bulls come out at the top, the price will probably break above the 1.0050 resistance level and push higher.

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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.