Jump to content

Euro Forecast: EUR/USD Greenlighted on ECB Rate Hike Bets, Rising EU Bond Yields


Recommended Posts

EURO, EUR/USD, ECB RATE HIKE BETS, INFLATION, BOND YIELDS, TECHNICAL OUTLOOK - TALKING POINTS

  • The Eurozone’s fundamental backdrop offers a brightening outlook for the Euro
  • ECB rate hike bets spurred by hot inflation print, European bond yields rise
  • EUR/USD pierces above confluent resistance, technical forecast looks bullish
Euro Forecast: EUR/USD Greenlighted on ECB Rate Hike Bets, Rising EU Bond  Yields

The Euro is making headway against the US Dollar this week, with EUR/USD rising to the highest level since November 15 after breaking out of a multi-week period of consolidation. The move comes as somewhat of a surprise for currency traders following a red hot US inflation report that showed prices in the United States rose at the fastest pace in decades and an increasingly hawkish Federal Reserve.

Traders appear to have moved too aggressively to price in those hawkish bets into the US Dollar, however. That left an avenue of attack open for the European currency, which saw its own respectively high inflation report last week. Before that report, expectations for the European Central Bank (ECB) were rather dovish, at least compared to most of its global peers, excluding the Bank of Japan. When a central bank is forecasted to raise rates – the ECB in this case – its issued currency benefits through a mechanism known as the interest rate differential (IRD). That is because higher rates promote investment and attract foreign capital flows.

While both the United States and the Eurozone are seeing high and sustained inflation, rate traders have just begun to up their bets over a tightening in ECB policy. The first ECB rate hike in over a decade now looks to be not only possible but probable. Overnight index swaps (OIS) are showing a 10 bps hike is fully priced in by the end of the year. While that will still leave Europe with a negative benchmark rate, it still inspires some confidence moving forward.

Rising bond yields across Europe reflect the outlook on tightening monetary policy, and a growing swath of analysts expects the Eurozone’s growth to accelerate this year, possibly outperforming the United States. The relatively lofty Treasury yields may help European equities outperform as well. Italian and Greek 10-year government bond yields – some of the riskiest debt in Europe – are offering yields just below their Treasury counterpart. Meanwhile, the negative German 10-year Bund yield is close to going positive. Altogether, the fundamental backdrop for the Euro looks bright.

European bond yields, italy, germany

Chart created with TradingView

 

EUR/USD TECHNICAL FORECAST

EUR/USD broke higher from an Ascending Triangle pattern and a descending trendline from the September swing high. The 38.2% Fibonacci retracement that offered confluent resistance was breached as well. The MACD and RSI oscillators are showing bullish momentum, with prices now aiming at the 61.8% Fib level and the descending 100-day Simple Moving Average (SMA). A reversal would seek support at former triangle resistance.

EUR/USD DAILY CHART

eurusd technical chart, euro

Chart created with TradingView

 

Written by Thomas Westwater, Analyst for DailyFX.com. 13th Jan 2022.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Is there any update on A Dividend Reinvestment Plan ?    Thanks  
    • How Merlin Is Addressing Bitcoin Scalability With A Unique Layer 2 Approach If you've been around the crypto world for a while, you're likely familiar with the limitations of Bitcoin's Layer 1 and its scalability issues. Over time, we've seen various innovative proposals like Wormhole's unique approach to address these limitations. In this context, Merlin Chain caught my attention. It's a project that aims to tackle Bitcoin's scalability challenges by offering a Layer 2 solution built on the ZK-Rollups model. This translates to faster and cheaper transactions while maintaining security through a decentralized oracle network with anti-fraud measures. Developed by the well-established Bitmap Tech team, Merlin Chain boasts a market cap exceeding $500 million. Their key objective has always been to empower existing Bitcoin assets by enabling them to interact seamlessly on the Layer 2 network. I believe backing from 20+ prominent VC firms like OKX Ventures and ViaBTC suggests confidence in Merlin Chain's future. MERL was launched as the first token on Bitget's pre-market trade platform and had a commendable price action. Is Merlin Chain's Layer 2 solution a long-term solution to this issue? Let's hear your candid opinions in the comments section below! Cheers! #Bitcoin #btc #halving #transactions #merlin #merl #bitget #web3 #wormhole
    • As the crypto sector undergoes transformation, Asia emerges as a formidable player alongside the established giants of the US and Europe. With significant investments and a growing user base, the region's potential for dominance is unmistakable. Leading this movement is Dubai, pioneering crypto adoption with its favorable regulations, attracting crypto exchanges focused on the region. A standout in this field is Bitget, Asia's largest web3 wallet provider, boasting a user base of over 19 million. Through regular events, Bitget cultivates community engagement, recognizing and rewarding the trust and loyalty of its users. One such event, the ongoing "Bitget Super Savings," offers over $20,000 worth of hot tokens across various categories, providing users with an opportunity to enrich their crypto portfolios. For those in South Asia, Bitget extends an invitation to participate in this ongoing event. Seize the chance to earn free hot tokens before the event concludes on April 26th. Good luck!
×
×
  • Create New...
us