EUR/USD Outlook: Investors Giving More Weight to Rising Rates

EUR/USD Outlook: Investors Giving More Weight to Rising Rates

  • Business activity shrank in the eurozone, pointing to a looming recession.
  • Inflation in the eurozone remains sky-high, hurting demand.
  • Investors expect the ECB to raise rates by 75bps on Thursday to combat rising inflation.

Today’s EUR/USD outlook is bullish as investors focus on Thursday’s rate hike expectations. According to a survey released Monday, the Eurozone is likely entering a recession as business activity shrank this month at the sharpest rate in over two years. Consumers grew more cautious, and the demand decreased. Investors, however, gave little weight to this release.

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Energy price increases and supply chain disruptions brought on by the coronavirus outbreak have particularly hurt factories. S&P Global’s eurozone flash composite purchasing managers’ index (PMI), regarded as a reliable indicator of the state of the economy, dropped to 47.1 from 48.1 in September, falling short of the 47.5 forecasts in a Reuters survey.

The number for October, which was the lowest since November 2020, was the fourth consecutive month below the 50-mark threshold that separates expansion from contraction.

According to figures released last week, the euro zone’s inflation rate reached a record 9.9% in September. As a result of the high increase in prices, demand significantly decreased, causing the composite new business index to drop to near two-year lows.

The European Central Bank has started hiking interest rates. It is anticipated to do so by another 75 basis points on Thursday to combat inflation that is now running at close to five times its target. This will further reduce the purchasing power of heavily indebted people.

EUR/USD key events today

Investors will pay attention to the eurozone’s German Ifo Business Climate index for October. On the other hand, the United States will release the CB consumer confidence report for October.

EUR/USD technical outlook: New high above 0.9875 confirming the bullish trend

EUR/USD outlook

Looking at the 4-hour chart, we see the price trading above the 30-SMA and the RSI above 50, showing bulls are in control. The bullish trend began when the price broke above and retested the 30-SMA.

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The price has now broken above the 0.9875 key level, making a new high. This further confirms the bullish trend. With this in mind, we know the price will likely push higher after pulling back, taking out the next resistance level at 0.9925. This might be the beginning of the journey back to parity.

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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.