EUR/USD Analysis: Fed’s Hawkish Stance Versus ECB’s Uncertainty Weigh on the Pair (edited)

During Tuesday’s Asian trading window, the EUR/USD pair faces challenges in building upon its gains from the prior session, manifesting a subtle bearish undertone. Nevertheless, the currency pair retains its position above the crucial 1.0600 mark, its trajectory largely dictated by the dynamics of the US Dollar (USD).

The anticipation of the Federal Reserve (Fed) adopting a more stringent monetary policy lends support to the rising US Treasury bond yields. This trend bolsters the USD, prompting opportunistic buying, which consequently poses challenges for the EUR/USD pair’s upward movement. These factors, combined with speculation that the European Central Bank (ECB) might halt further rate hikes, exert additional downward pressure on the spot prices.

Such sentiments were reinforced by recent data revealing a slowdown in German consumer inflation, which slipped from a 4.3% YoY rate to 3.0% in October. This represents the weakest inflation rate since August 2021. Coupled with looming recessionary threats, it hints that the ECB’s rate-hiking phase might have concluded. Conversely, market sentiment is leaning towards the possibility of another rate hike from the Federal Reserve in 2023.

Given the persistent robustness of the US economy and sustained inflationary pressures, investors are gearing up for the Federal Reserve to maintain its hawkish posture. All eyes are now set on the forthcoming two-day FOMC monetary policy gathering. The consensus anticipates the US central bank to sustain its current policy during Wednesday’s announcement, marking the second consecutive meeting without changes.

In this milieu, market stakeholders are eager to glean insights regarding the Fed’s prospective rate-hike trajectory, which will undeniably shape the USD’s performance and, by extension, influence the EUR/USD pair. In the interim, the imminent release of the preliminary Eurozone CPI data on Tuesday will be in the spotlight, providing potential short-term trading cues ahead of key US indicators, including the Chicago PMI and the Conference Board’s Consumer Confidence Index.

EUR/USD Technical Perspective

The upward journey of the EUR/USD appears to have momentarily stalled, with the pair displaying initial signs of bearish trades. This suggests a potential reversion to a downtrend, contingent upon the pair breaching the 1.0580 level. Such a move would pave the way towards the primary bearish target set at 1.0448.

Consequently, a pronounced downtrend is anticipated in the forthcoming trading sessions. It’s pivotal to note that surpassing the 1.0640 threshold would negate this bearish outlook, propelling the currency pair towards a more pronounced bullish correction.

For today, the trading spectrum is predicted to oscillate between support at 1.0510 and resistance at 1.0650.