Euro flatlines above 1.1600 despite ECB hawkish hike, traders brace for US CPI data

The EUR/USD currency pair remains stable around 1.1610 during the early Asian session on Friday. Traders are monitoring the European Central Bank (ECB) for its hawkish interest rate hike. However, caution may set in as traders await the US Consumer Price Index (CPI) inflation data, which could offer insights into the future US interest rate path.

At the ECB's September policy meeting on Thursday, the interest rate on the deposit facility was raised to 2.50%, marking the second hike this year following a June increase. ECB President Christine Lagarde expressed concern that Middle East conflict and the ongoing Russia-Ukraine war would keep headline inflation well above the bank's 2% target for an extended period.

Her hawkish remarks suggest potential for further rate hikes. This could provide support to the Euro in the near term. Analyst Roman Ziruk from Ebury stated that the ECB's communications indicate a hawkish tone. Meanwhile, hotter US Producer Price Index (PPI) data has increased expectations for a US Federal Reserve (Fed) rate hike next week, with nearly 70% odds now priced in, up from 62% before the data.

Scotiabank analysts anticipate the ECB to adopt a more hawkish stance at its forthcoming meeting, driven by the recent recovery in oil prices. Currently, EUR/USD exhibits a modest bullish bias, trading above the 100-day simple moving average while supported by the lower Bollinger Band near 1.1561. The Relative Strength Index (RSI) at 53.9 hints at slight positive momentum without signaling overbought conditions, indicating potential for further upside as long as buyers support the moving average cluster.

Immediate resistance is at the Bollinger middle band and 20-day SMA, around 1.1628, followed by the upper Bollinger Band near 1.1695. Support on the downside is linked to the 100-day SMA and the lower Bollinger Band at the 1.1560 level. A sustained breach below this zone could weaken the current bullish sentiment and pave the way for a more significant downturn.