EUR/USD flirts with 10-month high near 1.1000 post Fed showdown, ECB in focus

• EUR/USD bulls take a breather around multi-day top after rising the most in three months.
• Fed announced 0.25% rate hike as expected but Chairman Powell’s hint for rate cuts drowned US Dollar.
• Softer EU inflation, mixed US data failed to impress EUR/USD traders ahead of today’s ECB.
• ECB is likely announcing 0.50% rate hike, focus on easing of rate lifts.

EUR/USD bulls cheer the Federal Reserve’s (Fed) acceptance of easing price pressure, as well as Chairman Jerome Powell’s readiness for rate cuts if needed, by rising the most since November 2022 to poke the highest levels in 10 months, making rounds to 1.0990 at the latest. While the Fed-inspired rally appeared impressive, the major currency pair’s more moves appear to less likely ahead of the European Central Bank (ECB) monetary policy announcement, up for publishing during Thursday’s European session.

The Fed finally accepted that the inflation pressure in the US are abating of late while altering the Monetary Policy Statement wording to suggests that it “has eased somewhat but remains elevated”. The same initially allowed the US Dollar bears to take entries even as the US central bank announced a 0.25% Fed rate hike while matching market’s forecasts.

The greenback’s notable slump, however, took place after the Fed Chair Powell’s press as the policy hawk surprised markets by saying, “We can declare that a deflationary process has begun.” The policymaker also accepting the needs for rate cuts during late 2023 if inflation comes down much faster. The policymaker also suggested that a couple more rate hikes are needed to reach it.

It’s worth noting that the softer Eurozone inflation and the mixed US data previously challenged EUR/USD traders. That said, the preliminary readings of Euro area Harmonised Index of Consumer Prices (HICP) dropped to 8.5% YoY versus 9.0% expected and 9.5% prior. The Core HICP, however, came in unchanged at 5.2% compared to 5.1% market forecasts.

On the other hand, US ISM Manufacturing PMI dropped to the lowest levels since June 2020 while marking 47.4 figure for January, versus 48.0 expected and 48.4 prior. Further, the ADP Employment Change also declined to the one-year low with 106K be the latest figure compared to the 178K market forecasts and upwardly revised previous figure of 253K. On the contrary, JOLTS Job Openings rose to 11.012M in December, crossing 10.25M consensus and 10.44M prior readings.

Amid these plays, Wall Street rallied and the US 10-year Treasury yields slumped the most in two weeks.

Moving on, ECB is the key for the EUR/USD pair not only because it is up for announcing the 50 bps rate hike but also because the market doesn’t believe in the hawkish rhetoric of the policymakers and aim for hints of easy rates.

Also read: European Central Bank Preview: Lagarde needs to repeat her hawkish message

Technical analysis

A clear upside break of the seven-week high ascending trend line, close to 1.0960, directs EUR/USD towards March 2022 peak surrounding 1.1185.