It is normal for the price of EUR/USD to move amid a downward momentum ahead of the most important event for global financial markets. The decisions of the US Federal Reserve is coming, and the importance is because it may lead the path of tightening monetary policies of central banks world to meet historical global inflation levels. The EUR/USD pair fell below the 1.1300 psychological support, reaching the 1.1263 support level, the lowest in more than a month.
Uncertainty still dominates the future of the European Central Bank's tightening policy, which increases the euro's suffering against the rest of the other major currencies. Recently Deutsche Bank predicted that the European Central Bank (ECB) will raise interest rates next December, a call that could provide support for the euro exchange rates going forward. In this regard, Mark Wall, chief economist at Deutsche Bank, says he now expects the European Central Bank to start raising interest rates by 25 basis points in December 2022.
The call is in line with investors' expectations, as indicated by the financial markets, for a price hike by the end of the year.
Deutsche Bank previously held its base case forecast for a 10 basis point hike in December 2023, which points to expectations of a weaker euro in 2022. The expectations for a December rate hike come amid rising eurozone inflation which is now running ahead of the ECB's official target rate . The annual inflation rate in the Eurozone was 5.0% in December 2021, up from 4.9% in November 2021.
Inflation is still expected to decline in 2022, but at a slower rate and not that far. A December rate hike could mean closing the gap between the ECB and other central banks that have already raised interest rates or entering a rate-raising cycle.
For currencies, this is important as it provides some support for the euro yields.
Overall, the Euro has struggled against the British Pound and the Dollar in recent months as investors have sought a more aggressive rate hike cycle from both the Bank of England and the US Federal Reserve. While these two central banks are likely to stay ahead of the ECB, the yawn rate flaw that has affected the euro for some time will at least diminish.
The European Central Bank is likely to react to signs of increased spillover from durable to non-durable goods prices and this is an indication that inflation will continue further. Core inflation in the eurozone is rising sharply.
According to the technical analysis of the pair: The recent move of the EUR/USD currency pair below the psychological support 1.1300 brought the bears more momentum to move further downward. It also will move closer to the targets of the current downtrend, the levels of 1.1255 and 1.1180, and the last level is important for the expectations of psychological support 1.1000. The resistance levels of 1.1485 and 1.1660 will remain the most important to cause a strong and continuous change in the general trend of the euro dollar, which is still bearish so far. The divergence in the economic performance and the future of monetary policy tightening between the United States and the eurozone will continue to pressure any gains for the euro-dollar.
All focus today will be on the monetary policy decisions of the US Central Bank, its policy statement, and the statements of Governor Jerome Powell.