Euro Adjusts to ECB Messaging Ahead of US CPI This Week. Will EUR/USD Hold Gains?

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EURO, EUR/USD, US DOLLAR, ECB, LAGARDE, CRUDE OIL - TALKING POINTS

• The Euro has baulked at a recent high as the ECB steps back from hawkishness
• APAC equities were mixed, currencies were quiet but crude oil remains bid
• US CPI later this week could be crucial for EUR/USD. Where to from here?

 

The Euro continued to soften in Asia today after comments from ECB President Christine Lagarde yesterday. She appeared to step back from her remarks of last week that the market read as overtly hawkish that kicked off a bout of volatility.

Most notably, she said yesterday, "a rate hike will not occur before our net asset purchases finish." She also said, "any adjustment to our policy will be gradual."

Hong Kong and mainland Chinese equity markets went lower today, while the rest of the APAC indices were in the green. Gold remains steady around US$ 1,822 per ounce.

The Norwegian Krone was an underperformer in the Asian session despite crude oil futures contracts remaining at elevated levels. Backwardation remains in play in the oil market, indicating that an easing of demand doesn’t appear likely in the near term.

Backwardation is when the contract closest to settlement is more expensive than the contract that is settling after the first one. It highlights a willingness by the market to pay more to have immediate delivery, rather than have to wait.

The WTI crude oil futures market is currently paying more than US$ 1.50 bbl to have immediate delivery. On Friday it briefly traded as high as US$ 2.19, the highest premium since July 2018. The average price in 2021 was US$ 0.58 bbl.

Today’s Japanese Yen weakness could be explained by higher energy prices generally. The Australian and New Zealand Dollars were the out-performers on the day with iron ore holding above US$ 130 a tonne.

RBNZ Governor Adrian Orr announced that the central bank had begun work on developing a Central Bank Digital Currency (CBDC). Most of the crypto currencies have had a positive day.

After the Nasdaq’s -0.58% slide that dragged down Wall Street overnight, US markets are looking at a steady start to their session according to futures pricing.

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EUR/USD TECHNICAL ANALYSIS

The rally in EUR/USD last week stalled at the previous high of 1.14830. It may continue to offer resistance, as well as the pivot points at 1.15133 and 1.15245.

On the downside, support might be at a series of pivot point clusters. The first is at 1.13865 and 1.13830, then 1.12738 and 1.12633, then 1.12347 and 1.12219.

Further below, the pivot point at 1.11861 and the low at 1.11215 could provide support.

Closer by, support may also be at the 10, 34 and 55-day simple moving averages (SMA), currently at 1.13080, 1.13316 and 1.13151 respectively.

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com. 8th Feb 2022