EURUSD was met with strong bullish momentum after the Fed Rate Hike Decision and is likely to continue its run after the European Central Bank’s (ECB) rate decision. The ECB is expected to raise rates by 50 basis points, which would outweigh the Federal Reserves’ hike by 25 basis points.

Given that the ECB is highly inclined to fight inflation, interest rate hikes will likely be an ongoing theme for 2023. This gives the Euro a positive outlook as capital flows towards higher interest-earning opportunities.

Technicals

EURUSD has been in a steady uptrend driven by high-interest rate expectations in the Euro Area. Price jumped 0.67% for the day post the Federal Reserve rate hike. A breakout of resistance occurred as a result, leaving the 1.09311 level as a new support level.  

Bears have found interest slightly above the Fibonacci Extension Golden Rule of 61.8% or at the 1.10323 level. If bears continue to drive current market sentiment, the price will likely retrace to the support level at 1.09311 and reverse as bulls re-enter the market at discounted prices.  

However, if bearish activist subsides, bulls can regain market control and push the price towards the 1.10599 level or the 100% Fibonacci Extension zone.  

Summary 

Despite inflation in the Euro Area cooling off slightly, -0.4% compared to -0.2 expected for January, the ECB has strongly emphasised its commitment to bring inflation down to its 2% target. This approach will likely keep the EURUSD on an upward trajectory for 2023.

Sources: FederalReserve.gov, Reuters, TradingView