FX.co ★ EUR/USD

The EUR/USD pair falls to around 1.1585 in the early hours of the Asian trading session on Monday. The pair continues to fall amid increased speculation of Federal Reserve (Fed) interest rate hikes after higher-than-expected US inflation figures. The US CPI jumped in August, thus raising expectations of an interest rate hike by the US central bank next week. According to data published by the Bureau of Labor Statistics on Friday, US CPI climbed 0.4% MoM in August. This led to a 12-month rise of 3.4%. Meanwhile, core CPI, excluding volatile food and energy prices, rose 0.3% month over month, up from 0.2% and above estimates of 0.2%. Financial markets have already priced in anpriced in an almost 91% chance of a quarter-point rate increase at the Fed's September meeting, up from 72% before the release of US PPI data, according to CME's FedWatch tool. "While there's no guarantee that the Fed will raise rates next week, it would be difficult to justify holding off," Chris Zaccarelli, chief investment officer at Northlight Asset Management, said. In September, the European Central Bank (ECB) raised the interest rate on its deposit facility to 2.50% at its policy meeting. As expected, it was the ECB's second rate hike of the year, after raising its borrowing cost in June, which marked its first rise since 2023. Barclays analysts believe the ECB could raise rates further after its hawkish policy decision, amid concerns about higher inflation. Scotiabank analysts point out that the recent European Central Bank move came with "mixed but hawkish messaging from the ECB, in the form of a fresh forecast where inflation stays above target through the end of the projection period." It seems the messages from ECB President Christine Lagarde, "alongside subsequent commentary by key members of the governing council," "towards further hikes going forward and have pushed markets to price nearly 40bps of further policy rate increases by year end," according to the bank.

On the EUR/USD daily chart, the currency pair is trading above the lower Bollinger Band line and the 100-day SMA. This likely indicates weak buying interest, meaning some pressure is pushing prices higher. Nonetheless, price is below the middle Bollinger Band line, so upside potential is capped. The RSI(14) reading is at 48.8. This is considered a neutral indicator since the pair's momentum is balanced. Therefore, the near-term bias is sideways, with the pair consolidating in the current range. On the upside, the first zone where sellers may start feeling the heat is the Bollinger middle band, which is the 20-day SMA at 1.1628. If price reaches this level, it may face resistance. Next, another possible obstacle is the upper Bollinger band at 1.1695; selling pressure is expected to strengthen if price approaches this level. On the downside, the first support comes from two close zones: the lower Bollinger band at 1.1560 and the 100-day SMA at 1.1555. This forms a narrow buyers' zone. If price closes below it on the daily timeframe, expect more downward moves for the currency pair. If it closes above it, the chance of moving up toward the 1.1628 level remains.