EURUSD PRICE SPIKES TO MID-1.0200S, TWO-WEEK HIGH ON RISING ODDS FOR 50 BPS HIKE BY ECB

• EURUSD price jumped to a nearly two-week high and was supported by a combination of factors.
• Receding bets for a more aggressive Fed rate hike in July continued exerting pressure on the USD.
• Reports that the ECB will discuss hiking rates by 50 bps provided an additional boost to the euro.

EURUSD price attracted fresh buying near the 1.0120 region on Tuesday and shot to a nearly two-week high during the early part of the European session. The pair was last seen trading around mid-1.0200s, up over 1.0% for the day.

SUSTAINED USD SELLING CONTINUED LENDING SUPPORT

The US dollar prolonged its corrective pullback from a two-decade high for the third straight day amid receding bets for a more aggressive rate hike by the Federal Reserve in July. In fact, several FOMC members said last week that they were not in favour of a bigger rate increase that the markets priced in following the release of red-hot US consumer inflation. This, in turn, dragged the USD to its lowest level since July 6 and offered some support to the EUR/USD pair.

50 bps ECB rate hike news boosted shared currency

The European Central Bank (ECB) reportedly will discuss whether to raise interest rates by 25 bps or 50 bps to tame inflation at its upcoming policy meeting on Thursday. A Reuters report added that policymakers were homing in on a deal to provide bond market assistance to countries like Italy if they stick to European Commission rules on reforms and budget discipline. The headlines pushed the European bond yields higher, alongside the euro. This was seen as another factor behind the latest leg of a sudden spike witnessed over the past hour or so.

Investors remain concerned that a halt to gas flows from Russia could trigger an energy crisis in the Eurozone. This could drag the region’s economy faster and deeper into recession, curtailing the ECB’s ability to raise interest rates any further. The economic risks could hold back bulls from placing aggressive bets around the shared currency and keep a lid on any further gains for the EURUSD price, at least for the time being.

Hawkish Fed expectations to limit USD losses

The Fed, on the other hand, is still expected to deliver a larger rate hike later in the year to tame inflation, which accelerated to a fresh four-decade high in June. The speculations remained supportive of elevated US Treasury bond yields and support prospects for the emergence of some dip-buying around the USD. This might further contribute to capping the upside for the EURUSD price. Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the recent recovery from the 0.9950 area, or the lowest level since December 2002 touched last week.

Traders eye Eurozone CPI, US housing market data

Tuesday’s economic docket features the release of the final Eurozone Harmonised Index of Consumer Prices (HICP) and the US housing market data – Building Permits and Housing Starts. This, along with the US bond yields, might influence the USD price dynamics and allow traders to grab short-term opportunities around the EURUSD pair.