EUR/USD Price Forecast: Strengthens to near 1.1500, while bearish bias persists below 100-day SMA

The EUR/USD currency pair strengthened to approximately 1.1490 during the early European session on Friday, supported by a declining US Dollar. However, the potential for further gains may be constrained due to a more aggressive interest rate hike by the Federal Reserve. Traders are keeping a closer eye on Fed Governor Michelle Bowman's speech later in the week.

The Fed recently increased its benchmark interest rate by 0.25 percentage points to a range of 3.75% to 4%, marking the first hike since July 2023 in the fight against inflation. Simultaneously, the European Central Bank (ECB) also raised its key deposit rate by 0.25 percentage points to 2.50% from 2.25%. The ECB intends to delay further rate hikes until December to tackle inflation stemming from the Middle East conflict, according to Bloomberg economists.

Bloomberg's survey participants predict the Governing Council will raise the deposit rate to 2.75% at their final meeting of the year, bypassing a potential increase in late October. Scotiabank analysts note that the latest euro area inflation figures have not significantly altered the policy outlook, with inflation remaining low in the 3% range and core mid-2%.

Despite this, the ECB's messaging remains hawkish, reflected in the market's probability of a rate hike in October at 50% with a cumulative 36 basis points of tightening by December. Currently, EUR/USD holds a bearish near-term outlook as it trades below the 100-day moving average and the Bollinger middle band, with the price resting just above the lower Bollinger band indicating downside pressure.

The Relative Strength Index (14) at approximately 38 suggests weak but not yet oversold momentum, potentially allowing for further declines before a more substantial bounce. Immediate support can be found at the lower Bollinger band at 1.1475, while the 100-day moving average at 1.1550 represents the first resistance level. A sustained recovery above this level would help alleviate the prevailing bearish sentiment before the next hurdle at the Bollinger middle band around 1.1595.