The EUR/USD price has been under pressure in the past few days as the Fed and ECB hinted that high-interest rates were here to stay. 

Bearish view

• Buy the EUR/USD pair and set a take-profit at 1.0500.
• Add a stop-loss at 1.0700.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.0600 and a take-profit at 1.0700.
• Add a stop-loss at 1.0500.

The EUR/USD price pulled back slightly after the latest interest rate decision by the Fed and European Central Bank (ECB). It dropped to 1.0587, which was much lower than this month’s high of 1.0738. It remains a few points above this month’s low of 1.0460.
 

ECB and Fed hawkish decisions

The EUR/USD price pulled back slightly after the Fed and the ECB delivered their rates decision. The Fed decided to hike rates by 0.50% after hiking by 0.75% in the previous four meetings straight. It also warned that it will continue its battle against inflation in the coming months.

The decision came a day after the US published encouraging inflation data. According to the Bureau of Labor Statistics (BLS), headline inflation dropped to 7.3% in November from the previous 7.7%. Core inflation, which excludes the volatile food and energy products, also declined in November.

Therefore, the hawkish statement caught the market by surprise, which pushed bond yields higher and stocks lower. The yield of the 10-year government bonds rose to 3.48% while the 30-year and 2-year bond yields pulled back to 3.5% and 4.18%, respectively.

The EUR/USD price also declined after the relatively hawkish statement by the ECB. As was widely expected, the European Central Bank (ECB) decided to hike interest rates by 0.5% to 2%. That was a smaller increase than the previous increase of 0.75%. The bank warned that it will need to significantly hike rates further in a bid to tame inflation.

The other main change in the Fed statement was on its balance sheet. Like the Fed, the ECB will start reducing its balance sheet by 15 billion euros per month in March. The quantitative tightening process will end in the second quarter of 2023.
 

EUR/USD forecast

The EUR/USD price has been under pressure in the past few days as the Fed and ECB hinted that high-interest rates were here to stay. On the 4H chart, the pair moved to the lower side of the ascending channel. It also moved slightly below the 25-day moving average while the Relative Strength Index (RSI) has moved below the neutral point at 50.

Therefore, the pair will likely continue falling as sellers target the next key support level at 1.0500. It will likely resume the bullish trend later this week as investors embrace the new normal.

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