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Title: EUR/USD retests 0.9985 support as Fed bias, doubts over ECB test bulls ahead of US data

September 16, 2022 01:44 AM ET

By: AnalysisWatch

After a two-day absence, the EUR/USD returns to the downside table during Friday morning's European trading, meaning the major currency pair records slight losses as it renews its intraday low around 0.9985. In doing so, the quote reverses the previous day's upward break of 21-DMA support amid mixed concerns about the U.S. Federal Reserve (Fed) and the European Central Bank (ECB).

The latest Fed hawkish bets readings from CME's FedWatch tool suggest that the market has priced in Fed rate hikes of 0.75% and 1.0% at next week's meeting with 77% and 23% odds, respectively.

It should be noted that firmer U.S. data propelled hawkish Fed bets the day before. That said, U.S. retail sales rose 0.3% in August, versus 0.0% expected and a downward revision to July's -0.4%. In addition, the New York Fed's Empire State Manufacturing Index improved to 1.5 in September, versus 31.3 in August and 13.5 expected by the market. On the other hand, the Philadelphia Fed Manufacturing Index fell to -9.9 for the said month, down from 2.8 expected and 6.2 previously. In addition, U.S. industrial production fell by 0.2% in August, while the market was expecting a 0.1% expansion, and was revised down from 0.5%.

In their speeches on Thursday, ECB policymakers such as Gabriel Makhlouf, Vice President Luis de Guindos and Mario Centeno all favored the idea of a rate hike.

The final reading of Eurozone inflation data for August, which is expected to confirm initial forecasts of 9.1% y/y, may offer immediate guidance ahead of the preliminary reading of the Michigan Consumer Sentiment Index (CSI), which is expected to come in at 60 versus 58.2 previously. However, the main focus will be on the economic crisis in China and Europe, which supports the safe haven demand for the US dollar, ahead of the Federal Open Market Committee (FOMC) monetary policy meeting.

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