EUR/USD rebounds modestly from 1.0000, downside looks likely on risk-off mood

  • EUR/USD has displayed a mild recovery after hitting a low near 1.0000.
  • Soaring inflation consensus has underpinned the risk-off impulse.
  • The outcome of the Eurogroup meeting will be of utmost importance.

The EUR/USD pair has picked up bids after hitting a low much closer to the psychological support of 1.0000 in the Asian session. Earlier, the asset slipped after the downside break of the consolidation movement formed in a narrow range of 1.0034-1.0055 in early Tokyo. The mild corrective doesn’t seem a confident one, therefore the downside looks possible in case of violation of the 1.000 magical figure.

The greenback is performing stronger in the FX domain as the higher consensus for US inflation has accelerated the odds of a consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed). Considering the market consensus, the inflation rate is expected to climb to 8.6%. This has trimmed the risk appetite of investors.

The catalyst that is creating havoc for the Fed is that the price pressures are not cooling-off despite the vigorous deployment of policy tightening measures. The central bank has already accelerated the inflation rate to 1.50-1.75% in the past three monetary policy meetings along with a quick balance sheet reduction program.

On the eurozone front, investors are awaiting the minutes from the ongoing Eurogroup meeting. As expected, the discussions will be on fetching oil for catering the required demand, more sanctions on Russia, Brexit matters, and a higher Harmonized Index of Consumer Prices (HICP) rate. A meaningful decision on the matters will bring substantial volatility to the asset. This week, the release of the Germany HICP will be keenly watched. As per the market consensus, the inflation rate is seen stable at 8.2%.

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