EUR/USD languishes near six-month low, seems vulnerable below mid-1.0600s

• EUR/USD enters a bearish consolidation phase following the overnight post-ECB slump.
• Bets that the ECB is done with rate hikes undermine the shared currency and exert pressure.
• Hawkish Fed expectations benefit the USD and support prospects for a further downfall.

The EUR/USD pair oscillates in a range below mid-1.0600s during the Asian session on Friday and consolidates the previous day's post-ECB slump to a six-month trough.

The European Central Bank (ECB) opted to raise interest rates by 25 bps on Thursday, marking the 10th consecutive hike and taking its main rate to an all-time high level of 4% to counter stubbornly high inflation. The ECB, however, lowered its growth and inflation projections for the next year, bolstering the narrative that further hikes may be off the table for now. This, in turn, is seen as a key factor undermining the shared currency and weighing on the EUR/USD pair.

The US Dollar (USD), on the other hand, stands tall just below its highest level since March 8 touched on Thursday and remains well supported by growing acceptance that the Federal Reserve (Fed) will maintain its hawkish stance. The US CPI report released on Wednesday ensured that the Fed will keep rates steady at its upcoming monetary policy meeting next week. The still-sticky inflation, however, keeps the door open for one more lift-off by the end of this year.

The bets were further lifted by Thursday's upbeat US macro data, which continues to point to a resilient economy and should allow the Fed to keep interest rates higher for longer. That said, a generally positive risk tone holds back traders from placing aggressive bullish bets around the safe-haven buck and lends some support to the EUR/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside.

Hence, any attempted recovery might still be seen as a selling opportunity and remain capped. Traders now look to the Chinese macro data dump, which could influence the broader risk sentiment. Traders will further take cues from ECB President Christine Lagarde's scheduled speech. Apart from this, the US macro data – the Empire State Manufacturing Index and Prelim Michigan Consumer Sentiment Index – should provide some impetus to the EUR/USD pair on the last day of the week.

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