EUR/USD sees a dead cat bounce around 1.0400, downside remains favored ahead of Fed policy

• EUR/USD has displayed a minute recovery after hitting a monthly low of 1.0400.
• Investors have started discounting a 75 bps rate hike from the fed.
• ECB Lagarde will dictate the roadmap for accelerating the rate cycle.

The EUR/USD pair is minutely bided around 1.0400 after a perpendicular downside move from the crucial resistance of 1.0650. The downside pressure is expected to force the asset to recapture its five-year low at 1.0389. The shared currency bulls have witnessed an extreme sell-off in the last two trading sessions after violating the consolidation formed in a narrow range of 1.0611-1.0642 last week.

The uncertainty over the announcement of the interest rate decision by the Federal Reserve (Fed), which is due on Wednesday, has set a negative undertone in the market. Risk-perceived currencies have witnessed a steep fall while the appeal of the US dollar index (DXY) is improved significantly.

As per the market consensus, the extent of a rate hike has surged to 75 basis points (bps) after the release of the US Consumer Price Index (CPI). The US inflation has landed at 8.6%, much higher than the prior print of 8.3% while the core CPI has climbed to 6% vs. 5.9% reported earlier. One can witness that higher oil and food prices have contributed majorly to the price pressures.

On the euro front, investors are awaiting the speech from European Central Bank (ECB) President Christine Lagarde, which is due on Wednesday. ECB Lagarde is expected to dictate the roadmap of elevating the rate cycle for the first time from July. The price pressures in the eurozone have already jumped sharply above 8% and are needed to be tamed as early as possible by policy tightening measures.