EUR/USD is showing resilience, approaching the 1.1490 mark during the early hours of the Asian session on Friday. The negative tone of the pair persists below the 100-day SMA, accompanied by bearish RSI momentum. The initial support level is identified at 1.1475, while the first upside barrier is positioned at 1.1550. The EUR/USD pair is currently positioned in positive territory at approximately 1.1490 during the early European session on Friday, supported by a depreciating US Dollar. However, the potential upside of the major pair may be constrained in light of a hawkish interest rate increase by the Federal Reserve. Market participants are expected to glean additional insights from Fed Governor Michelle Bowman’s address scheduled for later on Friday.
The Fed has opted to increase its benchmark interest rate by a quarter-percentage point, establishing a new range of 3.75% to 4%. This marks the initial instance of the Fed increasing rates since July 2023, as the central bank persists in its efforts to mitigate inflationary pressures. Last week, the European Central Bank raised its key deposit rate by 25 basis points to 2.50% from 2.25%, a decision that was anticipated by investors. The ECB is expected to hold off until December to implement a final interest-rate increase aimed at addressing inflation spurred by the ongoing conflict in the Middle East, as per insights from economists. Respondents in a Bloomberg survey expect the Governing Council to increase the deposit rate to 2.75% at its final meeting of the year, forgoing the chance to do so in late October.
Strategists note that the latest euro area inflation data did little to shift the policy narrative, with the “final euro area CPI release” offering “little in terms of surprise.” They highlight that “headline inflation [is] remaining in the low 3% area and core hovering in the mid-2% range,” levels that continue to justify a firm policy stance from the ECB. In their view, “messaging from the ECB remains hawkish,” and this is reflected in market pricing, where investors now see “just over 50% chance of a hike in October with a cumulative 36bpts of tightening by December.” In the daily chart, EUR/USD maintains a bearish near-term outlook as the spot remains below the 100-day moving average and the Bollinger middle band. Price is currently positioned slightly above the lower Bollinger band, indicating a prevailing downside pressure.
Meanwhile, the Relative Strength Index (14) at approximately 38 suggests a weak momentum that has not yet reached oversold territory, implying the potential for additional decline before a significant corrective rebound may occur. On the downside, immediate support is identified at the lower Bollinger band, positioned at 1.1475. A breach of the latter could expose the July 13 low of 1.1377, followed by the June 24 low of 1.1324. On the topside, initial resistance is positioned at the 100-day moving average at 1.1550. Further north, the next hurdle to monitor is the Bollinger middle band situated at approximately 1.1595. A sustained recovery above these levels would be necessary to alleviate the current bearish bias before the upper Bollinger band near 1.1712 becomes relevant.
