EUR/USD drops from 0.9880, upside remain favored amid hawkish ECB bets

• EUR/USD has displayed a mild correction amid a marginal DXY recovery.
• The risk-on profile is intact as S&P500 futures are stuck to their extended gains.
• ECB Lagarde may announce a rate hike by 75 bps to curtail price pressures.

The EUR/USD pair has witnessed selling pressure after multiple failed attempts of overstepping the critical hurdle of 0.9880. The asset has not turned bearish yet as the risk profile is extremely cheerful. This could be merely a healthy correction in the asset’s upside journey.

S&P500 futures have extended their gains after an upbeat Tuesday, which indicates that the market mood is solid. Meanwhile, the US dollar index (DXY) is defending the downside bias and holding itself above 112.00. The 10-year US Treasury yields have accelerated above 4.02%.

The euro bulls are expected to turn traction toward the north amid soaring bets for European Central Bank (ECB)’s hawkish monetary policy. Reuters poll on ECB’s rate hike extent states that ECB President Christine Lagarde will step up the interest rates by 75 basis points (bps) on October 27. European Harmonized Index of Consumer Prices (HICP) trades five times higher than the targeted rate of 2%. Therefore, efficiency in policy tightening is required to contain mounting inflation.

The outcome of a Reuters poll states that the bloc's central bank will take the deposit rate to 1.50% and the refinancing rate to 2.00%.

On the US docket, recession fears are accelerating as the Federal Reserve (Fed) is preparing to announce one more bumper rate hike in the first week of November. Price pressures have not softened in response to the pace of the Fed’s rate hiking spell. And, Fed’s foremost agenda is to bring price stability.

Going forward, Wednesday’s Housing Starts data that reflects retail demand for real estate will hog the limelight. The economic data is expected to decline to 1.475M against the former release of 1.575M. It seems that accelerating interest rates by the Federal Reserve (Fed) have started displaying their consequences. Higher interest rates are forcing retailers to postpone their demand for personal property.