Jump to content

Can the ECB talk up EUR/USD at its upcoming meeting?

Recommended Posts

EUR/USD has bounced from the May low, but can this week’s ECB meeting provide fresh upward impetus?

European Central BankSource: Bloomberg
 Chris Beauchamp | Chief Market Analyst, London | Publication date: Wednesday 08 June 2022 

ECB to signal July rate hike, but will it be enough for the euro?

The European Central Bank (ECB) is the latecomer to the rate hiking party, if you exclude the Bank of Japan (BoJ), and no move from that quarter is expected for quite some time.

The Bank of England (BoE), Federal Reserve (Fed), Bank of Canada (BoC), Reserve Bank of Australia (RBA) and others have all raised rates to begin the fight against inflation. But the ECB, confronted by similar problems of high inflation and weaker growth, is also dealing with the eurozone’s proximity to the war in Ukraine.

As a result, Christine Lagarde and co have been slow to move, preferring to continue with loose policy for the time being. But the persistent rise in inflation shows no sign of abating, and with oil prices on the up again it looks to be another summer of rising prices.

More rate hikes to come

Thus, a July rate hike is likely to be telegraphed at this week’s meeting, but it is so widely expected that unless it is accompanied by plenty of hawkish commentary about a faster pace of tightening in the second half of the year, the euro may actually weaken against the dollar.

More rate hikes from August onwards are expected, but as the BoE has discovered, simply hiking rates at a steady pace is not enough when you are competing with a Federal Reserve that has been happy to talk up the pace of hikes.

Growth forecasts a risk to EUR/USD too

The bank will do its best to be fairly upbeat about the eurozone economy. But a cut to growth forecasts, to echo those of the World Bank this week, will put more pressure on EUR/USD too.

The Fed continues to talk up the US economy, which is still showing plenty of strength despite the wobble in the second quarter (Q2) gross domestic product (GDP) reading. The same cannot be said of the eurozone, where the risk of recession thanks to the Ukraine war is much higher.

Any positive benefit to EUR/USD arising from a rate hike and more hawkish commentary might well be outweighed if the growth forecasts are too gloomy.

EUR/USD struggles to make headway

EUR/USD has been steadily declining since the beginning of 2021. While the price rebounded from below $1.04 in May, it has failed to move back above the 50-day simple moving average (SMA), leaving the downtrend firmly intact.

It would take a big move back above $1.08 to suggest any kind of short-term bounce is in play, and even then the previous lower high lies close to $1.1190. Ultimately a big rally is needed to really suggest that the bounce is going to be sustained.

A post-meeting fallout for EUR/USD would see the price drop back below $1.06 that then brings the May low at $1.0350 back into view.

EUR/USD chartSource: ProRealTime
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
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 03/06/23 20:25
  • Posts

    • I don't know but it looks like a really awesome service Because I have come across all sorts of mixers in my work  
    • Charting the Markets: 2 June Indices rally as US agrees debt ceiling bill. EUR/USD, GBP/USD rally while EUR/GBP stabilises as US debt ceiling bill is passed. And WTI recoups recent losses while gold, silver on track for first weekly advance. Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Friday 02 June 2023               This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.
    • It was a blockbuster number yesterday for the ADP private payrolls, showing 278,000 jobs opened in May, while forecasts had been for 170,000.  Jeremy Naylor | Analyst, London | Publication date: Friday 02 June 2023 IGTV’s Jeremy Naylor suggests a similar upside surprise could see almost 300,000 jobs created under the non-farm payroll count with estimates for 190,000 job creations. The unemployment rate is seen rising one notch to 3.5%. (Video Transcript) NPFs: what to expect Could yesterday's strong private payrolls number from the ADP reading give us an insight into the potential upside risk to today's non-farm payrolls? That report from ADP yesterday showed 278,000 jobs opened in May - forecasts had been for 170,000. Now the NFP expectations, 190,000 job creations are forecast for the month of May proportionately using that ADP surprise. That would mean an upside reading for NFPs close to 300,000. Why the increase? Now, the unemployment rate is seen rising one notch to 3.5%. Why is that rising? When you've got that rise in the number of job creations, the unemployment rate is not taking the same data that the jobs numbers themselves are being produced from average hourly earnings. We're looking there for that to go up 0.3% month-on-month, 4.4% year-on-year, still below the rate of inflation. Now, this chart shows the unemployment rate back to pre-Covid-19 levels. It's clear that jobs have been created at an appreciable rate and this alongside a relatively strong GDP number and inflation coming down, there may yet be a soft landing for the US economy. But if the Federal Reserve (Fed) does continue to raise rates, things may get a little bit more sticky for the economy and a little bit more difficult to predict. This is a comparison of fed funds rates and US consumer price inflation (CPI) since January 2021. So you can see here the rate at which the US central bank has been piling the pressure on the monetary markets with that rise to five and a quarter percent. And at the same time, the CPI number is coming down, which is a good thing, but it's still not down to the 2% level, 4.9% is a long way away still from the 2% target. So the Fed is entitled still to have an excuse to raise interest rates. US dollar basket Let's take a look at what's been happening with the US dollar basket. Yesterday, we saw a pullback coming through as we saw money going into risk assets because of that rubber stamping from the Senate or the vote in the Senate to approve the budget that's now gone for the presidential seal. EUR/USD And we've seen a second day in a row of losses or the euro for the dollar basket as far as the euro/dollar is concerned, bouncing away from that 76.4% retracement. And I think now, you will have been stopped out if you were short on this, you would have been stopped out on this and hopefully you would have got some profits on the way down. So that's where things are ahead of non-farm payrolls out today at 13:30 UK time. And we will be live on the IG platform at 13:25 today.
  • Create New...