EUR/USD slid to a one-month low near $1.1533 as markets price a high probability of a Fed rate hike at Wednesday's decision, following the ECB's own hike last week. The pair has broken key technical support, opening the door to a deeper slide if the Fed follows through.
EUR/USD fell 0.5% to a one-month low of $1.1533 on Monday. The drop comes as investors price an 87% probability of a Federal Reserve rate increase at Wednesday's decision, LSEG data show, following Friday's strong US CPI inflation print.
A separate estimate from ActionForex put the swing more sharply: September Fed hike odds surged from 67% to 88% intraday after Thursday's hot CPI data. Falling oil prices, however, pulled Treasury yields back from three-year highs near 4.99%, tempering the dollar's advance. Adding political noise, President Trump has reportedly pressed Fed Chair Kevin Warsh directly on rate cuts, a claim Trump himself has downplayed, just as the Fed enters its blackout period ahead of the meeting.
ECB's hike fails to move the euro
The European Central Bank delivered its second hike of the year on September 10, lifting the deposit rate to 2.50%, warning that Middle East-driven inflation pressures will keep price growth well above target for an extended period. According to ActionForex: "a no-brainer" was how ECB President Christine Lagarde described the move, yet the euro barely reacted since the hike had already been fully priced in. Markets are now pricing more ECB tightening than the central bank's own projections suggest is needed.
Attention turns next to Tuesday's German ZEW survey for further evidence on the state of the eurozone economy. ING's Francesco Pesole notes that with the ECB placing greater emphasis on high-frequency indicators, the survey will be closely watched.
EUR/USD chart signals a bearish shift
EUR/USD has broken below the ascending trendline that guided its late-July recovery, also losing the 200-period EMA and the 0.382 Fibonacci retracement confluence near 1.1580, both of which had served as support during the advance. Price is now testing the 0.5 retracement near 1.1533.
A recovery above the 200-period EMA and 0.382 retracement near 1.1580 would open the path toward retesting the broken ascending trendline. But a decisive break below the 0.5 retracement would expose the 0.618 level near 1.1490, where the broken descending trendline sits as a resistance-turned-support test; a failure to hold there risks a deeper slide toward the 0.786 retracement near 1.1430.
The pair's next move now hinges on the Fed: Wednesday's decision could either accelerate the current correction or hand buyers a reason to defend the 0.5 support first.
Sources: ActionForex, The Wall Street Journal
Trading involves risk.
Risk Disclaimer
