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EUR/USD Gains for a 3rd Day As Bets for a Higher Rate Hike Emerge

The EUR/USD continued its push away from parity this Tuesday, gaining 1.04% as the pair looks to coast towards the 3rd day of gains. Supporting the single currency today are market rumours that some policymakers within the European Central Bank (ECB) want to push for a more aggressive rate increase in this week’s meeting.

The ECB is due to release its interest rate decision this Thursday, and the apex bank is widely expected to conduct its first rate hike in over a decade. While a 25bps has been on the cards all this while, the new information has brought new bets of a potential 50bps hike on the table. 

The sources also say that the ECB could make additional bond purchases conditional under new EU fiscal rules. However, the scope of any rate hikes looks likely to dominate the price action on the EUR/USD this week, given the scarcity of fundamental triggers for the greenback this week on the economic news calendar. 

The impact of the ECB decision is expected to last only a few days, as the market’s attention will shift squarely to next week’s Fed decision, where a 100bps rate hike is also on the radar of some market analysts. Any rallies on the EUR/USD could be viewed as a retracement to the upside, given the strength that the greenback has shown in the last two months. 

EUR/USD Forecast

The retracement rally looks poised to target the 6 July high at 1.02791 (61.8% Fibonacci retracement). Above this level, the 78.6% Fibonacci retracement at 1.03537 becomes the next resistance target (13 May and 15 June 2022 lows). If this rally breaks this resistance, the bulls will have clear skies to aim for 1.04996. 

Conversely, a decline below the 1.01042 price mark (5 July 1999 low and 13 July 2022 high) provides the bears with an opportunity to push lower, targeting the 1.00048 price mark initially (12 July/15 July 2022 lows). If the bulls fail to defend this support, we could see a further decline that targets 0.98774, the site of the low seen in early December 2002. Below this level, additional support is seen at the 0.96877 price mark, which is the 28 October 2002 low.

EUR/USD: 4-hour Chart