Piece written by Alexa Smith, Trive Financial Market Analyst
While Euro Area headline inflation deflated in line with the expected 5.5%, core inflation rose from 5.3% to 5.5%. As inflation remains high in Europe, the European Central Bank (ECB) may consider raising interest rates further in its upcoming decision, boosting sentiment in the EURUSD currency pair. However, there is uncertainty regarding the prospect of further interest rate hikes due to a deteriorating economic outlook in Europe, which could peak the currency pair’s potential gains.
Additionally, the Federal Reserve is expected to hike interest rates by 25 basis points in today’s interest rate decision, which could tilt the currency pair further into the red. The market is uncertain whether this will be the last rate hike, but the Fed Press Conference could shed some light on the stance of a previously dovish Fed.
Technical
The EURUSD currency pair flattened at the swing-high of 1.12515; however, downside pressure saw the price action establish support at the previous resistance of 1.11320. Since intersecting with the 50-day moving average, the currency pair has succumbed to additional downside pressure, establishing support at 1.10469, the 50% level.
If the downside momentum persists, the 1.09986 and 1.09298 Fibonacci Retracement levels could serve as catalysts, edging the pair towards the 1.08423 major support if a breakdown of the 50% level occurs. However, the 1.10469 support could hold, which may encourage a pullback towards 1.11320 and pave the way towards the 1.12515 major resistance if a breakout is sustained.
Summary
The EURUSD currency pair tumbled and established support at the 50% level in anticipation of the Federal Reserve’s interest rate decision. If the downside momentum persists, the currency pair may return to the 1.08423 major support. However, the ECB’s interest rate decision could drive upward momentum, which may encourage the pair to retest the 1.12515 major resistance.
Sources: TradingView, ECB, Federal Reserve, Reuters
