September 8, 2022 14:52:42

The European Central Bank (ECB) picked up its choice between growth and inflation. In today’s meeting, the ECB went for its biggest rate hike for the first time in 23 years of its existence. Of course, the reason should be big enough behind this bold action from the central bank.

Despite, a rate hike of 75bps on Thursday and a probability of further rate hikes, the Euro failed to sustain the early gains. Why is this a valid question to ask?

In the opening lines of ECB President Christine Lagarde there was a warning about the slide of the shared currency and at the strength of the U.S dollar. The Euro has already depreciated nearly 12% against the greenback since the beginning of the year.

The recent downside in the single currency added to the already heightened inflationary pressure as it added to the cost of Euro area energy imports, which are quoted in the U.S dollar.

Further, the market had discounted the news as the policymakers were discussing anything between a 50 and a 75 basis-point increase. But, a continued rise in both headline and underlying inflation cleared the dilemma of the central bank, and they opted for a bigger rate hike.

In addition, the bloc’s inflation projections were also lifted once again from 3.5% to 5.5% for 2023, and 2.3% from 2% for 2024. This added pressure on the Euro. We expect a consolidation with negative bias in the further price at least in the short term.

EUR/USD remains pressured below 1.0000

On the daily chart, the EUR/USD pair could not breach the bearish slopping line that extends from the high of 1.0364. The formation of a probable evening star could set a fresh downside cycle. The asset could drop below the previous session low of 0.9875.

To move higher the bulls must chase the session’s high of 1.0028 and a daily close above this level would mean the 1.0200 mark.