After the US data solidified the case for a 25 bps rate hike by the Fed, the EUR/USD was rejected from the 1.0900 psychological barriers for two consecutive days before falling to the 1.0860 zone on Friday.
The current value of the euro against the dollar is 1.0866. The possibility of a 25 basis point Fed rate hike due to weak US core PCE has increased.

Even though there were worries that the US economy might slow down, Wall Street ended the week higher. The figures released on Thursday provided more evidence of a healthy economy, with Q4 GDP growing by 2.9% QoQ, above the 2.6% predicted, and Q3 GDP remaining at 3.2%.

That prompted speculation that the US Federal Reserve may implement a “soft landing.”

Meanwhile, data released on Friday showed that inflation is slowing, likely more quickly than expected. Core Personal Consumption Expenditure (PCE), the Fed’s preferred inflation index, came in at 4.4% YoY, in line with projections but lower than November’s 4.7%. Since December’s rate increase was the first one not at 75 bps, this added to rumors that the Fed would reduce the size of future increases.

Instead, Powell and the company decided on a 50 bps increase, justifying their decision by noting that the growth rate is less essential than the maximum rate of increase. The CME FedWatchTool shows that the odds of a Fed’s 25 bps rate hike are 99.2 percent as of the close of trading on Friday, and traders expect the Federal Funds rate (FFR) to peak at roughly 5 percent by the time of the March meeting.

A poll by the University of Michigan showed that the mood of US consumers went from 64.6 to 64.9. The data showed that inflation projections for the next year are 3.9%, which is lower than the previous poll, and that projections for the next five years are 2.9%, which is lower than the last poll.

European Central Bank (ECB) officials have said in the past that they plan to raise interest rates at their next meeting on February 2. Despite a drop in inflation in the Eurozone to 9.2 percent, European Central Bank President Christine Lagarde said the bank would “keep the course” with a 50 basis point rate hike in January and the meeting after that.

With the Fed increasing rates to 4.50–4.75% and the ECB to 2.50%, the conditions are in place to narrow the interest rate gap between the United States and the Eurozone. Therefore, barring a nasty dovish surprise from Lagarde, the EUR/USD could resume its upward bias and challenge 1.1000.

EUR/USD Technical Outlook

The EUR/USD pair experienced slight downward movements yesterday, testing the EMA50. This was while the stochastic indicator was displaying a clear upward momentum, likely propelling prices in a bullish direction by targeting 1.1030 as its next destination.

We remain confident about the rise in price in the near future. However, if it breaches 1.0845, a fall toward 1.0745 is possible before it starts to climb again.

According to the technical outlook, the trading range for today will be between 1.0800 and 1.0970, with 1.0800 being the support level and 1.0970 being the resistance level.

The expected trend for today: Bullish