Euro posts modest gains near 1.1100 as traders assess ECB's rate path
- EUR/USD trades with mild gains around 1.1095 in Thursday’s early Asian session.
- Fed Waller sees December hike likely, opens door to possible 50 bps increase.
- Traders weigh possible December rate hike signals from the ECB.
The EUR/USD pair posts modest gains near 1.1095 during the early Asian trading hours on Thursday. However, the potential upside for the major pair might be limited by expectations of a bigger interest rate hike from the US Federal Reserve (Fed) this year.
The Consumer Price Index (CPI) rose 0.4% MoM in October, versus 0.6% growth prior, the Bureau of Labor Statistics reported Tuesday. This figure came in hotter than the market expectations of 0.3%. Stripping out volatile food and energy, so-called core CPI increased 0.3% against the forecast for a 0.2% gain.
Fed Governor Christopher Waller said that a hot inflation report could push him toward advocating for a half-point increase in December.
Traders are now pricing in nearly 87.3% odds of a Fed rate hike when the Fed next meets December 8-9 and put odds of a half-point hike at 12.7%, after being around zero prior to the inflation report, according to the CME FedWatch tool.
Across the pond, European Central Bank (ECB) policymaker Philip Lane noted that energy prices may be falling but the ECB’s interest rate decisions will depend on how strongly the recent surge in fuel costs spreads to wages and other prices.
Last week, ECB President Christine Lagarde said that the central Bank is looking at indicators to see if an interest rate hike will be warranted next month, after it held rates steady in October.
Euro outlook softens as ECB caution contrasts with Fed and French political risks
Strategists at Rabobank 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.”
Lane stresses consensus and inflation lags, modestly supportive for the Euro
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 focus on underlying inflation as a guide to one-year-ahead inflation, and the expectation of second-round effects, reinforces concern about persistent price pressures. The idea that headline inflation could fall as energy prices reverse while underlying inflation rises, combined with the need for an instrument for multiple bond market equilibriums, points to an ECB that remains cautious on loosening policy, keeping Euro downside somewhat contained.
Technical Analysis: EUR/USD keeps a bearish vibe under the 100-day SMA
In the daily chart, EUR/USD maintains a bearish near-term tone as spot holds beneath a dense band of volatility and trend indicators. The 20-day Bollinger Bands now sit entirely above price, with the lower band and the middle band acting as immediate overhead supply, while the upper band and the 100-day simple moving average (SMA) reinforce a broader downside bias. The Relative Strength Index (14) at about 37 stays below the neutral 50 mark, hinting that selling pressure still outweighs dip-buying interest despite the recent slowdown in downside momentum.
On the topside, initial resistance is seen at the lower Bollinger band close to 1.1095, followed by the mid-band around 1.1185. Above that, the upper Bollinger band at roughly 1.1270 lines up ahead of the 100-day SMA near 1.1405, forming a wider cap that bulls would need to reclaim to alleviate the current bearish structure. With no clear nearby support levels from the monitored indicators below the market, traders may continue to treat any rebound into this clustered resistance as an opportunity to re-engage the prevailing downtrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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