EUR/USD Price Analysis: Investors Pricing in 100bps Fed Rate Hike

• US inflation came in higher than expected.
• Investors are considering a 100bps rate hike from the Fed.
• PPI data will give more insight into US inflation.

Today’s EUR/USD price analysis is bearish as the pair dropped from three-week highs to the lowest point since last Thursday due to upbeat US inflation data that strengthened the US dollar.

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The annual rate fell from 8.5% to 8.3%, while the Consumer Price Index increased by 0.1% monthly. The core CPI, which does not include food or energy, increased 6.3% from a year ago, exceeding the market consensus of 6.1%. It is the last important report before the FOMC meeting the following week.

According to CME’s FedWatch tool, financial markets have now fully priced an interest rate increase of at least 75 basis points at the end of the Fed’s policy meeting next week. There is a 38% possibility of a super-sized, full-percentage-point increase to the Fed funds target rate.

“USD rates are now pricing in a Fed funds rate of 4.25% by end-2022 (75bps, 75bps, 25bps for the remaining three meetings). Decent odds of a 4.5% peak in early 2023 is also reflected,” said Eugene Leow, senior rates strategist at Deutsche Bank.

EUR/USD key events today

Investors will get more information regarding US inflation when the Producer Price Index data is released later today. There will also be speeches from ECB members Philip Lane and Elizabeth McCaul, which might contain clues on the next ECB policy meeting and monetary policy.

EUR/USD technical price analysis: Sellers poised for a 0.9900 retest

Looking at the 4-hour chart, we see the price trading below the 30-SMA and RSI trading below 50. Bears have taken control of the market, pushing the price back below parity. The price had previously broken above 1.00508 and retested resistance at 1.01960. This resistance, however, proved too difficult to break, and sellers returned with a lot of strength.

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The price has not only fallen below 1.00508 but has also broken below the 30-SMA and the 1.0000 psychological level. This indicates a lot of bearish momentum. The price has retested parity and is looking set to fall further. If bears can maintain momentum, the price will likely retest and break below the 0.99014 support level.

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