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  • ECB could hike rates significantly next month.
  • Eurozone inflation rose to 8.9% in July, in line with forecasts.
  • Markets are pricing a 55 basis point rate hike from the ECB in September.

Today’s EUR/USD price analysis is bearish as rising interest rates increase the risk of a recession. Isabel Schnabel, a European Central Bank’s board member, stated that the outlook for inflation in the eurozone has not improved since a rate hike in July. It indicates that she favors another significant increase in interest rates next month even though the odds of a recession increase.

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The central bank of the 19-country bloc shocked investors by raising interest rates by 50 basis points last month.

“In July, we decided to raise rates by 50 basis points because we were concerned about the inflation outlook,” she told Reuters in an interview. “The concerns we had in July have not been alleviated… I do not think this outlook has changed fundamentally.”

Markets are now priced in a 55 basis point increase for September and a total of 118 basis points of hikes by the end of the year as inflation pressures seem to be increasing in recent weeks.

The issue is that as rising energy prices erode purchasing power and slow growth, inflation at 8.9% is already more than four times the ECB’s 2% target.

Schnabel observed that ECB estimates had been off in previous quarters, so real price rise numbers need to be given greater weight in policy choices, even though inflation is anticipated to slow sharply in the coming years.

EUR/USD key events today

Investors expect the Euro’s Commitments of Traders report. The weekly Commitments of Traders report from the Commodity Futures Trading Commission gives an overview of the net holdings held by speculative traders in U.S. futures markets.

EUR/USD technical price analysis: Bears showing weakness below 1.01008

EUR/USD price analysis

Looking at the 4-hour chart, we see the price trading well below the 30-SMA, a sign that bears are holding the reins. The RSI is trading in the oversold region, which could mean that bears have reached their limit. The price has broken below a critical support level at 1.01008 but is struggling to go lower.

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At the current level, bulls might return to retrace the recent move to retest 1.01008 or even 1.01988 before heading lower. Such a move would make the current breakout a false one.

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