EUR/USD Outlook: ECB Expected to Deliver Massive Hike to Curb Inflation

EUR/USD Outlook: ECB Expected to Deliver Massive Hike to Curb Inflation

  • Eurozone inflation is consuming household savings and destroying economic activity.
  • Markets estimate an 80% chance of a 75bps rate hike.
  • An aggressive ECB will worsen the effects of the energy crisis.

Today’s EUR/USD outlook is bullish. The European Central Bank will increase interest rates once more to combat spiraling inflation; the only remaining uncertainty is the exact rate.

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Policymakers are frantically trying to contain the bloc’s worst period of price growth in almost 50 years as it consumes household savings and drags down economic activity. There is concern that sky-high inflation is becoming entrenched.

The rate hike will ultimately range between 50 and 75 basis points, with estimates currently pointing towards a larger increase but not with full certainty.

The greater hike would represent the largest increase in the ECB’s benchmark rate in history, but regardless of the result, the bank’s course will be obvious.

Additional increases are anticipated in the upcoming months since price pressures continually exceed even the gloomiest projections.

Markets currently estimate a more than 80% possibility of a 75 basis point increase due to hawkish remarks from conservative policymakers. This hike might cause a lot of volatility for EUR/USD.

“With the hawks continuing to hold the upper hand, we think the ECB will deliver a 75 basis point increase,” BNP Paribas economist Paul Hollingsworth said.

High energy costs will reduce purchasing power and almost likely cause a recession in the eurozone, which might be made worse by an aggressive ECB.

A significant increase after a decade of ultra-low rates also goes against the European Central Bank’s guidance for gradualism.

EUR/USD key events today

EUR/USD investors have a busy day ahead. The ECB rate decision is expected later today, with markets pricing in an 80% chance of a 75bps rate hike. There will also be speeches from ECB President Lagarde and Fed Chair Powell that will contain clues on future monetary policy.

EUR/USD technical outlook: Buyers looking poised to push above parity

EUR/USD outlook

Looking at the 4-hour chart, we see the price trading close to parity. It is trading above the 30-SMA, and RSI is trading above 50, a sign that buyers are strong.

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The price oscillates around parity with resistance at 1.00509 and support at 0.99008. If bulls can maintain their strength, the price might break above resistance to start a bullish trend.

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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.