Euro is trading downside against the US dollar at the start of the week. The main driver of the EUR/USD pair may be the indecision over the next moves of the European Central Bank (ECB) and the US Federal Reserve (Fed).

While the Market News Internation (MNI) cited sources to confirm further easy money policies at the ECB, Reuters’ poll has noted a reduction in the bond purchase from April.

Further confusing was the ANZ report which said that, “The ECB is expected to boost its monthly APP purchases as part of the transition from PEPP from next April onwards. It is expected that the ECB’s inflation forecast will show inflation below target in 2023, justifying guidance that rates won’t rise next year.”

On the other hand, RR figure of -0.037 remains in favor of the US dollar amid a firmer expectations of the Fed’s faster tapering and the hope of rate hike despite of the Omicron’s worries.

US Consumer Price Index (CPI) data exceeded the forecast of 6.2% to 6.8%  to refresh the 39-year high. However, the stable inflation expectations revealed via the University of Michigan Consumer Sentiment Index, to 70.4 for December poses a challenge to the Fed hawks.

Central banks will need to strike a difficult balance between Omicron-induced uncertainty and elevated inflation levels,” the Barclays analysts said.

Traders now see a more than 50% chance of a rate hike by May 2022, according to the CME Group’s FedWatch programme.

An acceleration of tapering would likely support the dollar particularly versus currencies whose central banks will likely be slower to tighten.

“The Fed meeting certainly could prove the catalyst for EUR/USD to break down to 1.10. Though investors may prefer to wait from the ECB the next day before chasing the move,” said ING analysts in a note.

EUR/USD 4 Hour Chart:

Support: 1.1275 (S1), 1.1240 (S2), 1.1216 (S3).

Resistance: 1.1334 (R1), 1.1358 (R2), 1.1393 (R3).

Fed hawkish expectation against the ECB’s confusing move underpins the EUR/USD down trend. We expect a bearish trend for EUR/USD.