Near 1.1100: Euro edges higher as traders weigh ECB's rate outlook

1.1095 is the level around which EUR/USD edges higher. Trading remains in Thursday’s early Asian session.
50 bps remains an option for Fed Waller, who views a December rate hike as likely.
Signals of a potential ECB rate increase in December draw traders’ attention.

1.1095 marks EUR/USD’s approximate level as it edges higher. The pair is recording modest gains in early Asian trading on Thursday. Expectations that the US Federal Reserve (Fed) could deliver a larger interest rate increase this year may, however, constrain further upside.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

October’s Consumer Price Index (CPI) advanced 0.4% MoM, exceeding the market forecast of 0.3%, according to Tuesday’s Bureau of Labor Statistics release. The previous increase was 0.6%. Excluding volatile food and energy prices, core CPI rose 0.3%, also above the projected 0.2% gain.

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

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

In Europe, the transmission of the recent fuel-cost surge into wages and other prices will determine the European Central Bank’s (ECB) interest rate decisions, policymaker Philip Lane said. He noted that energy prices may be declining.

Following the decision to leave rates unchanged in October, ECB 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 risk

December tightening expectations extend beyond the US, according to Rabobank strategists, who observe that “the Fed is not the only G10 central bank widely expected to hike rates in December,” and place the ECB “among those banks also likely to tighten policy.” Their qualification is that “the ECB, however, could prove to be reluctant to hike rates beyond December,” citing “the last ECB press conference” which “suggested that the GC were becoming increasingly concerns about the growth outlook.” Rabobank’s assessment is that “market pricing for 2027 ECB rate rises remains too aggressive,” while political uncertainty presents another risk: “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, Rabobank “forecast a move to EUR/USD1.10 on a 3-month view.”

6.2/10: Lane’s consensus focus and inflation lags offer modest Euro support

At 6.2/10, ECB policymaker Lane’s FXS Speechtracker score matches the historical average exactly. It indicates a consistent, mildly hawkish bias 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, providing modest support for the Euro.

Persistent price pressures remain a concern given Lane’s use of underlying inflation to gauge inflation one year ahead and his expectation of second-round effects. Falling energy prices could lower headline inflation even as underlying inflation increases. Alongside the need for an instrument to address multiple bond market equilibria, this suggests continued ECB caution towards easing, limiting the Euro’s downside to some extent.

100-day SMA Caps EUR/USD: Technical Analysis Remains Bearish

A dense cluster of volatility and trend indicators above the spot price keeps EUR/USD’s near-term daily-chart outlook bearish. All of the 20-day Bollinger Bands are now above the market. The lower and middle bands provide the nearest overhead supply, while the upper band and 100-day simple moving average (SMA) strengthen the wider downside bias. At about 37, the Relative Strength Index (14) remains below the neutral 50 threshold. This suggests sellers still have the upper hand over dip buyers, even though downward momentum has recently eased.

The lower Bollinger band near 1.1095 provides the first resistance, with the middle band around 1.1185 next. Further up, the upper band at roughly 1.1270 precedes the 100-day SMA near 1.1405. Together, these form a broader resistance zone that buyers would need to recover to ease the bearish structure. The indicators being monitored offer no clear nearby support beneath the current price. Traders may therefore continue to view rebounds into this resistance cluster as opportunities to rejoin the prevailing downtrend.

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

Euro: Key Questions Answered

Euro basics: currency and trading share

Used by the 20 European Union countries in the Eurozone, the Euro ranks behind only the US Dollar in global currency trading. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most traded currency pair. The next Euro pairs are EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

ECB policy: its role and influence on the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and directing monetary policy. Maintaining price stability is its core mandate, whether through containing inflation or stimulating growth. Interest rate increases and cuts are its main policy instrument. The Euro generally benefits from relatively high rates or expectations of higher rates; the reverse also holds. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of Eurozone national central banks and six permanent members, among them ECB President Christine Lagarde.

Inflation data: implications for the Euro

The Harmonized Index of Consumer Prices (HICP), which measures Eurozone inflation, is a key economic gauge for the Euro. An inflation reading above expectations, particularly above the ECB’s 2% target, requires the central bank to increase interest rates to regain control of prices. Higher interest rates relative to other economies usually support the Euro by making the region a more attractive destination for global investment.

Economic releases: drivers of Euro movements

The Euro can respond to data releases that assess economic health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help shape the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially prompting the ECB to raise interest rates, which would directly strengthen the currency. Weak economic readings, by contrast, are likely to weigh on the Euro. Particular attention is paid to figures from Germany, France, Italy and Spain. These four largest euro-area economies together represent 75% of the Eurozone economy.

Trade Balance: a source of Euro demand

The Trade Balance is another important release for the Euro. Over a specified period, it records the difference between a country’s export earnings and its spending on imports. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.