Euro edges higher near 1.1100 as traders weigh ECB rate outlook

• At around 1.1095, EUR/USD edges higher in early Asian trading on Thursday.
• A December rate rise looks likely to Fed’s Waller, with a 50 bps increase possible.
• Signals of a potential ECB rate rise in December come under traders’ scrutiny.

Around 1.1095, EUR/USD is modestly higher in Thursday’s early Asian session. Expectations that the US Federal Reserve (Fed) could deliver a larger interest rate rise this year may nevertheless restrain further gains in the major currency pair.

October’s Consumer Price Index (CPI) increased by 0.4% MoM, exceeding the market forecast of 0.3%, according to Tuesday’s release from the Bureau of Labor Statistics. The previous rise was 0.6%. Excluding volatile food and energy prices, core CPI advanced 0.3%, compared with an anticipated 0.2% increase.

Fed Governor Christopher Waller indicated that a strong inflation reading could lead him to support a half-point rate rise in December.

For the Fed’s next meeting on 8–9 December, traders now assign a nearly 87.3% probability to a rate increase, according to the CME FedWatch tool. The likelihood of a half-point rise stands at 12.7%, up from roughly zero before the inflation release.

In Europe, Philip Lane, a policymaker at the European Central Bank (ECB), said that although energy prices may be declining, interest rate decisions would hinge on the extent to which the recent jump in fuel costs feeds through to wages and other prices.

After the ECB left rates unchanged in October, President Christine Lagarde said last week that the central bank was assessing indicators to determine whether a rate increase would be justified next month.

Euro outlook weakens amid ECB caution, Fed divergence and French political risks

Rabobank strategists identify the ECB as “among those banks also likely to tighten policy.” They observe that “the Fed is not the only G10 central bank widely expected to hike rates in December,” but add a qualification: “the ECB, however, could prove to be reluctant to hike rates beyond December,” citing indications from “the last ECB press conference” which “suggested that the GC were becoming increasingly concerns about the growth outlook.” Rabobank’s own assessment is that “market pricing for 2027 ECB rate rises remains too aggressive,” while the strategists also warn that “another factor that could weigh on the EUR in the coming months are uncertainties about what a far-right president in France could mean for EU cooperation going forward.” Taking these factors together, they “forecast a move to EUR/USD1.10 on a 3-month view.”

Euro finds modest support as Lane emphasises consensus and inflation lags

A score of 6.2/10 for the ECB’s Lane on FXS Speechtracker matches the historical average precisely. It indicates a continued, mildly hawkish leaning rather than a material change in tone. His emphasis on a “high premium on consensus” and a “high bar on directional forward guidance” implies that the ECB will refrain from committing to aggressive easing, offering modest support to the euro.

Concern over enduring price pressures is reinforced by Lane’s use of underlying inflation to gauge inflation one year ahead, alongside expectations of second-round effects. Headline inflation could decline as energy prices retreat even while underlying inflation increases. Together with the need for an instrument to address multiple bond market equilibria, this suggests continued ECB caution towards policy easing, helping to limit the euro’s downside.

Technical Analysis: EUR/USD remains bearish below the 100-day SMA

Trading below a tightly grouped set of volatility and trend indicators leaves EUR/USD with a bearish short-term bias on the daily chart. All of the 20-day Bollinger Bands are now above the spot price. The lower and middle bands provide the nearest overhead supply, while the upper band and the 100-day simple moving average (SMA) underpin the wider bearish outlook. At approximately 37, the Relative Strength Index (14) remains below the neutral threshold of 50. This suggests that selling continues to outweigh buying on dips, even though downward momentum has eased recently.

The lower Bollinger band, near 1.1095, provides the first upside resistance, with the middle band around 1.1185 next in view. Further up, the upper band at approximately 1.1270 precedes the 100-day SMA near 1.1405. Together, these form a broader ceiling that buyers would need to overcome to ease the prevailing bearish structure. The indicators being monitored offer no clear nearby support below current prices. Traders may therefore continue to regard recoveries towards this resistance cluster as opportunities to rejoin the established downtrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)