EUR/USD has climbed back toward the high of its Warsh-driven selloff near 1.1660, with the pair now trading close to that level ahead of today's ECB rate decision. The US PPI report and Fed's Waller's CPI-dependent stance add further volatility risk, but tomorrow's US CPI print remains the main event ahead of next week's FOMC decision.
EUR/USD is approaching the high of its Warsh-driven selloff around the 1.1660 level, erasing much of the drop triggered by a hawkish speech from Warsh. The pair has been edging higher after bouncing from the 1.1560 support on the daily chart.
Dollar loses ground as CPI takes focus
The US dollar has been losing ground since the NFP report, mainly because the market has shifted its focus from payrolls to the CPI print, which the Federal Reserve is currently watching most closely. The US PPI report lands today, but the CPI due tomorrow remains the key event ahead of next week's FOMC decision.
Fed's Waller said he won't consider an interest rate hike unless the data shows a hot CPI, so a soft or in-line print would likely weaken the dollar further, while an upside surprise in core monthly inflation would likely trigger a hawkish repricing rally. However, the market is also focused on the Iran war and surging oil prices, which add upside inflation risks and could make the CPI reaction less straightforward than expected.
ECB seen hiking 25bps, euro risk skewed lower
On the euro side, the ECB is widely expected to hike rates by 25 bps today, bringing the policy rate to 2.50%, with Lagarde not expected to explicitly pre-commit to another hike. Markets currently price around 48bps of tightening by year-end and 85bps by the end of 2027.
That is already a significant amount of tightening priced into the curve. Therefore, the ECB would need to "outhawk" market expectations to trigger a hawkish repricing and lift the euro. A 25bps hike paired with a cautious Lagarde would be read as more dovish and weigh on the euro, while signs the ECB is prepared to keep hiking if inflation risks persist could give the currency some upside.
Key technical levels to watch
On the 4-hour chart, the swing high near 1.1661 is the level to watch, since that is where Warsh delivered his hawkish speech. Sellers may step in around that swing high to position for a drop back into the 1.1560 support, while buyers need a break higher to build bullish bets toward 1.1711.
Meanwhile, a break above the 1.1711 high on the daily chart would open the door to 1.1850 next, while sellers could look to position for a drop into the 1.14 support below.
Source: Investinglive.com
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