EUR/USD Forecast: Hopes of recovery dissipate as Fed tapers, ECB dismisses 2022 hike


  • EUR/USD has come under renewed bearish pressure on Thursday.
  • ECB policymakers want markets to know that they are not looking to hike rates in 2022.
  • Dollar gains traction as Fed starts reducing asset purchases.

EUR/USD has turned south following Wednesday's modest rebound and started to move toward its 2021 lows on Thursday.

European Central Bank (ECB) policymakers' comments on the rate outlook and the US Federal Reserve's decision to reduce monthly asset purchases highlighted the diverging policies between these central banks.

ECB President Christine Lagarde said on Wednesday the conditions needed for the bank to hike its policy rate was "very unlikely" to be satisfied next year. On a similar note, "ECB's forward guidance does not support the market view of a first interest rate hike in the third quarter of 2022 nor any time soon afterwards," noted ECB Governing Council member Pablo Hernandez de Cos. Finally, Governing Council member Francois Villeroy de Galhau reflected the same sentiment by stating that there is no need for the ECB to raise its policy rate next year

On the other hand, the Fed decided to reduce its asset purchases by $15 billion per month, starting in mid-November. 

FOMC Chairman Jerome Powell reiterated that they would not automatically hike the policy rate when the quantitative easing program ends but that comment doesn't seem to be having a noticeable impact on the market expectation.

According to the CME Group FedWatch Tool, markets are pricing a 61.5% chance of a rate increase by June 2022, virtually unchanged from the day before.

As it currently stands, EUR/USD recovery attempts are likely to be technical in nature and remain limited with fundamentals favouring the dollar over the common currency.

EUR/USD Technical Analysis

The 2021-low set at 1.1524 aligns as the next target on the downside. With a decisive move below that support, the pair could extend its slide toward 1.1500 (psychological level) and 1.1440 (previous resistance). Meanwhile, the Relative Strength Index (RSI) indicator on the four-hour chart is now around 40, suggesting that there is more room on the downside before the pair becomes technically oversold.

On the other hand, the first line of resistance is located at 1.1600 (psychological level) before 1.1620 (200-period SMA, 100-period SMA, Fibonacci 23.% retracement of September downtrend). In case buyers manage to lift the price above the latter, the next hurdle could be seen at 1.1670 (Fibonacci 38.2% retracement).

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD struggles to rebound, holds near 1.1150 after US data

EUR/USD trades around 1.1150 in the early American session on Friday as investors assess the latest inflation data from the US. According to the US Bureau of Economic Analysis, Core PCE Price Index rose to 4.9% on a yearly basis in December from 4.7% in November, surpassing the market expectation of 4.8%. 

EUR/USD News

GBP/USD clings to small gains above 1.3400 on mixed US data

GBP/USD posts modest daily gains slightly above 1.3400 on Friday as the dollar rally loses steam. The data from the US showed that the core PCE inflation edged higher to 4.9% in December. On a negative note, Personal Spending contracted by 0.6% on a monthly basis.

GBP/USD News

Gold recovers modestly after US data, stays below $1,800

Gold managed to stage a rebound from the multi-week low it set below $1,780 but continues to trade deep in the red near $1,790. The benchmark 10-year US Treasury bond yield is rising more than 1% on the day after US data, limiting XAU/USD's recovery.

Gold News

Bitcoin Weekly Forecast: Federal Reserve cannot tame BTC’s uptrend

Bitcoin has experienced some significant losses over the past few weeks, with a more dramatic drop occurring this week after the Fed's decision was announced. As losses have extended and BTC has entered into the $30,000 zone, concerns regarding Bitcoin being in a bear market have increased.

Read more

Apple share price set to rise after another record quarter

With the Nasdaq closing at its lowest level in seven months yesterday, the Apple share price has also found itself on the end of the recent weakness in tech shares, down over 12% from its record highs in early January.

Read more

Majors

Cryptocurrencies

Signatures