1.1200 gives way as euro retreats and hotter US inflation boosts Fed rate hike bets

• Stronger-than-forecast US inflation lifts demand for the US Dollar, pushing EUR/USD lower on Tuesday.
• 0.4% was the increase in US consumer prices in October. The reading surpassed the 0.3% forecast, with core inflation still elevated.
• 99% is now the market-implied probability of a December Federal Reserve rate hike, underscoring the monetary policy divergence with the Eurozone.

EUR/USD trades around 1.1190. At the time of writing on Tuesday, the pair is down 0.28% on the day, extending its decline. Stronger-than-forecast United States (US) inflation has pushed the pair below the psychological 1.1200 threshold. The data bolsters expectations of further monetary tightening by the Federal Reserve (Fed), lending support to the US Dollar (USD).

October's US Consumer Price Index (CPI) increased 0.4% MoM, according to Tuesday's release from the Bureau of Labor Statistics (BLS). That exceeded the market forecast of 0.3%, but marked a slowdown from September's 0.6% rise. Excluding volatile food and energy prices, Core CPI advanced 0.3%. This matched the previous month's reading and surpassed expectations of 0.2%.

Concerns that US price pressures remain persistent have intensified after the upside inflation surprise, adding to the case for further interest rate rises. At the time of publication on Tuesday, the US Dollar Index (DXY) is up 0.3% at around 102.00. The index tracks the Greenback against a basket of six major currencies, and its advance adds to the pressure on EUR/USD.

A 25-basis-point (bps) rate increase at the Fed's December meeting now carries a 99% probability in financial markets, according to the CME FedWatch tool. The probability stood at 84% only a day earlier. An increase of that size would lift the federal funds target range to 4.00%-4.25%.

A Reuters survey conducted between November 6 and 10 supports that outlook: all 101 economists expect a 25-basis-point rise at the December 9 meeting. Views on the policy path beyond that meeting remain divided. While 56 respondents expect December's increase to end the current tightening cycle, 45 anticipate at least two further hikes.

Further tightening also received support from Fed Governor Christopher Waller on Tuesday. He indicated that he would back a 25-basis-point December increase even if inflation eased. Should monthly core inflation stay around 0.3% or above, he added, a stronger policy response could be needed. A 50-basis-point increase should therefore also be considered.

Improving sentiment towards European sovereign debt is providing some support for the Euro (EUR). From an October peak of around 175 basis points, the yield spread between French and German 10-year government bonds has narrowed to approximately 145 basis points. France's political uncertainty and continuing budgetary difficulties, however, still constrain the European currency's appeal.

Another December interest rate rise would be prudent if economic conditions stayed broadly unchanged, European Central Bank (ECB) Chief Economist Philip Lane indicated. He expects Eurozone inflation to end the year slightly above 4% and sees the potential for underlying inflationary pressures to strengthen.

For now, the US Dollar is benefiting from stronger US inflation and the near-certainty of another Fed hike, notwithstanding the ECB's relatively hawkish signals. As investors reassess the interest rate outlook on both sides of the Atlantic, increasing attention to persistent US price pressures could keep EUR/USD under pressure.

1.1189: EUR/USD Technical Outlook

At 1.1189 on the four-hour chart, EUR/USD retains a slightly bearish short-term bias. It remains below both the 100-period simple moving average (SMA) at 1.1196 and the 200-period SMA at 1.1227. Failure to regain these moving averages indicates that rallies remain constrained for now. Meanwhile, a Relative Strength Index (RSI) reading near 47 points to weakening momentum rather than outright oversold conditions.

The 100-period SMA around 1.1196 provides the first upside resistance, ahead of the 200-period SMA near 1.1227. Beyond those levels, the recent horizontal ceiling near 1.1275 presents a stronger barrier. If selling pressure persists, the next significant support is the horizontal level around 1.1100, where buyers may seek to defend the broader trading range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)