- The ECB raised interest rates by 75bps as markets had expected.
- US GDP came in higher than expected after two-quarters of declines.
- EUR/USD went back below parity after the ECB rate decision.
Today’s EUR/USD outlook is bearish. The euro fell more than 1% on Thursday, returning below parity with the dollar after the European Central Bank (ECB) increased interest rates. US data revealed that the world’s largest economy rebounded more than anticipated in the third quarter boosting the dollar.
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To prevent rapid price inflation from becoming entrenched, the ECB increased its deposit rate by 75 basis points to 1.5%, the highest level since 2009. This was no surprise; investors took profits on their bets, pushing the pair lower. Even though further rate increases are almost certain, the rate depends on how the economy performs.
After the ECB rate decision, the euro dropped from a one-month high of $1.0094 to return to trading below parity with the dollar.
The dollar gained value when data revealed that the United States’ gross domestic product increased at an annualized pace of 2.6% last quarter, reversing a string of two consecutive quarters of output declines that had fueled worries about an impending recession. Markets had expected the GDP growth to go up at a 2.4% pace.
The GDP data came after a string of economic reports that were worse than anticipated in recent weeks, raising concerns about the economy’s reaction to the Federal Reserve’s aggressive interest rate increases.
EUR/USD key events today
Investors will pay attention to data from the US, including the Personal Consumption Expenditure (PCE) price index and the pending home sales report.
EUR/USD technical outlook: Bearish momentum forces a breach below parity
The 4-hour chart shows the price trading slightly above the 30-SMA and the RSI slightly below 50. After a steep bullish move that pushed the price above parity, bulls found strong resistance at the 1.0090 level. Bears took over at this level, taking the price back below parity.
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Currently, the price is bouncing off parity after a retest. With support from the 30-SMA, bulls might gather enough momentum to push back above parity. However, bears will likely take the price below the 30-SMA to retest the 0.9875 support if they fail.
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Saqib Iqbal
