EUR/USD is experiencing modest gains, hovering around 1.1095 during the early Asian session on Thursday. Fed Waller indicates a probable rate hike in December, suggesting the possibility of a 50 basis points increase. Market participants are assessing potential indications of a rate increase from the European Central Bank in December. The EUR/USD pair registers slight increases around 1.1095 in the early hours of Asian trading on Thursday. However, the potential upside for the major pair may be constrained by anticipations of a more substantial interest rate increase from the US Federal Reserve this year. The Consumer Price Index increased by 0.4% month-over-month in October, compared to a prior growth rate of 0.6%, as reported by the Bureau of Labour Statistics on Tuesday. This figure exceeded market expectations of 0.3%. Excluding the more volatile categories of food and energy, the core CPI registered an increase of 0.3%, surpassing the anticipated gain of 0.2%.
Fed Governor Christopher Waller indicated that a strong inflation report might lead him to support a half-point increase in December. Traders are currently assigning approximately 87.3% probability to a Federal Reserve rate hike during the upcoming meeting on December 8-9, with the likelihood of a half-point increase now at 12.7%. This marks a significant shift from the near-zero odds observed prior to the recent inflation report, as indicated by the CME FedWatch tool. Across the pond, European Central Bank policymaker Philip Lane noted that energy prices may be falling, but the ECB’s interest rate decisions will depend on the extent to which the recent surge in fuel costs influences wages and other prices. Last week, ECB President Christine Lagarde indicated that the central bank is assessing various indicators to determine whether an interest rate hike will be justified next month, following its decision to maintain rates in October.
Strategists note that “the Fed is not the only G10 central bank widely expected to hike rates in December,” with the ECB “among those banks also likely to tighten policy.” However, they caution that “the ECB, however, could prove to be reluctant to hike rates beyond December,” pointing to signals from “the last ECB press conference” which “suggested that the GC were becoming increasingly concerns about the growth outlook.” In Rabobank’s house view, “market pricing for 2027 ECB rate rises remains too aggressive,” and they warn that “another factor that could weigh on the EUR in the coming months are uncertainties about what a far-right president in France could mean for EU cooperation going forward.” Against this backdrop, Rabobank “forecast a move to EUR/USD1.10 on a 3-month view.” ECB’s Lane scores 6.2/10 on FXS Speechtracker, exactly in line with the historic average, signaling no major shift in tone but a steady, mildly hawkish bias.
Emphasis on a “high premium on consensus” and a “high bar on directional forward guidance” suggests the ECB will avoid committing to an aggressive easing path, which is modestly supportive for the Euro. Lane’s emphasis on underlying inflation as an indicator for one-year-ahead inflation, along with the anticipation of second-round effects, underscores worries regarding enduring price pressures. The notion that headline inflation may decline as energy prices shift, while core inflation experiences an uptick, alongside the necessity for a mechanism to address various bond market equilibriums, suggests that the ECB will maintain a prudent stance regarding policy easing, thereby somewhat limiting the downside for the Euro. In the daily chart, EUR/USD exhibits a bearish near-term tone as the spot remains positioned below a concentrated band of volatility and trend indicators. The 20-day Bollinger Bands are currently positioned entirely above the price, with the lower band and the middle band serving as immediate overhead supply.
Meanwhile, the upper band and the 100-day simple moving average reinforce a broader downside bias. The Relative Strength Index (14) at approximately 37 remains beneath the neutral 50 threshold, indicating that selling pressure continues to surpass dip-buying interest, even in light of the recent deceleration in downward momentum. On the topside, initial resistance is observed at the lower Bollinger band near 1.1095, succeeded by the mid-band approximately at 1.1185. Above that, the upper Bollinger band at approximately 1.1270 aligns with the 100-day SMA near 1.1405, creating a broader resistance that bulls must overcome to mitigate the prevailing bearish trend. In the absence of distinct support levels indicated by the monitored metrics beneath the market, traders are likely to view any recovery toward this concentrated resistance as a chance to re-enter the dominant downtrend.
