EURUSD struggles around 1.0350 as Fed to continue with current rate hike pace

  • November 14, 2022
  • EURUSD is facing hurdles while overstepping the immediate resistance of 1.0350.
  • Fed’s continuation of rate hiking at an ongoing pace may infuse fresh blood into the US dollar.
  • ECB could control inflation by recession in Eurozone which may bring volatility in Euro.
  • EURUSD to focus on Eurozone GDP release for further cues.

EURUSD is facing barricades around the immediate resistance of 1.0350 in the Tokyo session. A meaningful drop in October’s inflation report released last week was expected to compel the Federal Reserve to calm down its current pace of hiking interest rates. However, the think tanks are still satisfied with a one-time meaningful fall and demand more evidence to change their view. This has brought a marginal rebound in the US dollar index (DXY) to near 106.70. The DXY could expand as anxiety ahead of the United States midterm elections outcome could spurt volatility. The Euro investors are further awaiting Eurozone Gross Domestic Product (GDP) figures for further action.

Federal Reserve’s continuation of rate hike regime to resurface US Dollar

Last week, the headline Consumer Price Index (CPI) dropped to 7.7% and market participants punished the American dollar in view of the fact that the Federal Reserve will slow down its pace of hiking interest rates. However, economists at Danske Bank have a say that price pressures in the US are set to persist. “While markets have reacted very positively to the October CPI print, we continue to see further risks of more persistent inflation and think it is too early to trade a clear Federal Reserve pivot.”Federal Reserve Governor Christopher Waller supports the view that 7.7% headline inflation is “enormous,” and the Federal Reserve still has a long way to go, therefore, rates will stay high for a while. He further added that Rates will not fall until there is “clear, strong evidence” inflation is falling.   

In case of the continuation of policy tightening measures by the Federal Reserve, the odds for a recession situation in the US will keep buzzing. The Greenback bulls may shift into the grip of bulls and EURUSD may face significant pressure.

Hawkish ECB policymakers’ remarks support the Euro

European Central Bank (ECB) policymakers are continuing with their verdict of hiking interest rates as inflationary pressures are getting beyond their control. Hawkish commentaries from ECB and expectations for a retreat in the US dollar are restricting EURUSD in a limited territory. The Euro could face pressure as European Central Bank (ECB) Governing Council member Isabel Schnabel noted last week that inflation expectations in the Eurozone are still broadly anchored but added that risks of high inflation persistence had increased further, as reported by Reuters. He further added that only a deep recession in Eurozone could save the economy from mounting inflation. This may keep EURUSD on the tenterhooks.

Eurozone GDP data

This week, the Eurozone’s GDP will be under investors’ radar. As per the consensus, the annual Gross Domestic Data (GDP) is expected to remain stable at 2.1%. The economy is facing the turbulence of soaring inflation, energy crisis, and supply chain bottlenecks due to Russia-Ukraine tensions. Therefore, stable GDP data might be supportive of the shared currency.

EURUSD Technical Outlook

EURUSD has reached the horizontal resistance placed from June 15 low at 1.0363 on a four-hour scale. The Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that the bullish momentum in EURUSD is active.

The 50-and 200-period Exponential Moving Averages (EMAs) at 1.0080 and 0.9943 respectively are advancing, which will keep EURUSD into the grip of bulls. The American dollar could regain strength if the asset drops below the round-level support of 1.0200.