EUR/USD stabilises around 1.1610 during the early Asian session on Friday. The ECB has increased its key deposit rate by 25 basis points to 2.50%, a decision that was largely anticipated by market participants. Markets are currently reflecting a 70% probability of a Federal Reserve rate increase in September. The EUR/USD pair remains stable at approximately 1.1610 in the early hours of the Asian session on Friday. Traders are actively evaluating the implications of a hawkish rate increase from the European Central Bank. However, markets may adopt a more cautious stance later in the day in anticipation of the crucial US Consumer Price Index inflation data, which could provide further insights into the trajectory of US interest rates.
The ECB raised the interest rate on the deposit facility to 2.50% at its September policy meeting on Thursday, aligning with widespread expectations. It marked the ECB’s second increase in borrowing costs this year, following the initial hike in June, which was the first adjustment since 2023. ECB President Christine Lagarde cautioned that the ongoing conflict in the Middle East, along with recent events in Russia’s war on Ukraine, will maintain headline inflation “well above target,” exceeding the bank’s 2% target for a prolonged duration. Analysts at Scotiabank expect the ECB to strike a firmer tone at the upcoming meeting, arguing that “we expect a hawkish message, given the latest recovery in oil prices,” and that officials are likely to deliver “a forceful endorsement in favor of further near-term tightening as policymakers remain intent on containing the risk of broadening price pressures.”
Across the pond, stronger US Producer Price Index inflation data has heightened expectations for a US Federal Reserve rate hike in the upcoming week. Markets are currently assigning approximately 70% probabilities to a rise in US interest rates next week, an increase from the previous 62% following the latest data, as indicated by the CME FedWatch Tool. Analysts anticipate that the ECB will adopt a more assertive stance in the forthcoming meeting, positing that “we expect a hawkish message, given the latest recovery in oil prices,” and suggesting that officials are likely to provide “a forceful endorsement in favour of further near-term tightening as policymakers remain intent on containing the risk of broadening price pressures.”
In the daily chart, EUR/USD exhibits a slight bullish inclination as the spot price remains above the 100-day simple moving average, with additional support provided by the lower Bollinger Band near 1.1561. The Relative Strength Index at 53.9 indicates a marginally positive stance without suggesting overbought conditions, implying potential for additional upside provided that buyers maintain support at the underlying moving average cluster. On the topside, immediate resistance emerges at the Bollinger middle band, the 20-day SMA, around 1.1628, followed by the upper Bollinger Band near 1.1695. On the downside, initial support is aligned with the 100-day SMA and the lower Bollinger Band in the 1.1560 area. A sustained break below that zone is necessary to undermine the current constructive tone and to open the door to a deeper correction.
