EUR/USD Outlook: Fed Likely to Hike 100-BPS, Pushing Below Parity

EUR/USD Outlook: Fed Likely to Hike 100-BPS, Pushing Below Parity

  • The pair might break below parity.
  • Red hot US inflation is fueling recession fears.
  • Markets expect the Federal Reserve to deliver a 100bps hike after the BoC.

Today’s EUR/USD outlook is bearish as markets expect the Federal Reserve to hit rising inflation aggressively. Investors have debated the parity level for EUR/USD for months, and now we are here. The pair has finally touched below parity. 

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The catalyst for yesterday’s move was the US inflation data that came in higher than expected across the board. Everything rose from the previous apart from the core YoY inflation, which fell less than expected at 5.9%. YoY June inflation came in at 9.1%, higher than the expected 8.8%.

The Federal Reserve has a tough job ahead, and markets believe a 100 basis point rate hike is possible. It is especially possible as the Bank of Canada yesterday paved the way with the first major central bank 100bps rate hike.  

Such a hike would fuel recession fears that would push more investors to the safe-haven dollar. EUR/USD still has significant downside potential.

EUR/USD key events today

Later in the day, investors will be paying attention to the Producer Price Index from the United States. This index measures the change in the price of goods sold by manufacturers. This index is yet another indicator of inflation and is therefore essential. A higher-than-expected reading could cause a collapse in the pair, indicating rising inflation and higher interest rates from the Fed.

There will also be the initial jobless claims showing the number of people who registered for unemployment insurance for the first time in the past week. This data will show the state of the US job market.

EUR/USD technical outlook: Bears looking beyond parity

EUR/USD outlook

Looking at the 4-hour chart, we see the price trading around parity after retesting the 30-SMA. The Bears are showing impressive strength as they keep the pair pushing lower. This strength can be seen in the RSI, trading well below 50.

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At this point, the price is likely to fall below 1.000 and head lower. However, it might also consolidate before making lower lows. If the price breaks below parity, we might see it get to 0.99500, a psychological level. This trend will turn bullish if the price breaks above the 30-SMA and the RSI starts trading above 50.

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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.