The price of the EUR/USD currency pair stumbled again in a rebound higher, as the negative pressures on the euro are still strong and persistent. After attempting to rebound higher at the beginning of this week’s trading, towards the level of 1.0462, it retreated to the vicinity of the support 1.0400, and last week the price of the euro dollar fell towards the support level 1.0365. The exchange rate of the euro against the dollar has slipped again near its lowest levels in the last five years and may risk remaining under pressure near those levels in the coming days unless the US currency stumbles further in the wake of Friday’s stumble.

The single European currency, the Euro, came under pressure from the dollar’s strength early last week and approached its lowest level in five years, after Eurostat data showed mixed overall and core European inflation rates. The dollar’s erratic strength was an important driver of the euro’s losses, and thus the sharp recovery late in the Friday session when the greenback suffered a setback following the release of the ISM manufacturing PMI for June.

Many economists took Friday’s negative ISM PMI surprise as an indication of the ongoing US economic slowdown, a popular concept recently but which did little to help the US dollar on Friday, which fell against many currencies ahead of the weekend’s close. .

The US dollar did not benefit much last week from the ISM manufacturing survey or the Federal Reserve’s (Fed) preferred inflation measure – the core PCE price index – which stalled for June, and in the meantime, the annual rate fell from 4.9%. 4.7% all the way. Both were followed by broad losses for the dollar, although it was also quick to attract buyers from the market during the weakness, and it is now likely that much of the EUR/USD pair this week will depend on the market’s response to important events in the US calendar and to anything emerging. Especially on the ECB policy front.

The euro received no help last week when ECB President Lagarde stressed the importance of discretion regarding the timing and size of any changes in interest rates after the 0.25% hike in July that was previously announced last month. Given the prevailing uncertainty, normalization should remain gradual. Currently, our goal should be to avoid the entrenchment of high imported inflation in the near term by feeding high inflation expectations. That is why we are ending policies that sought to fend off deflationary dynamics, such as net asset purchases and negative rates, said Fabio Panetta, member of the European Central Bank’s Executive Board, on Friday.

added. Further adjustments to our monetary policy stance will depend on the evolution of inflation expectations and the economy. At this point, inflation expectations are around 2% and wage increases remain moderate. We are closely monitoring these developments. We want to see how the economy reacts to tighter financing conditions and a deteriorating global and domestic economic outlook. And with fears that the global economy has been leading markets to speculate lately on their previous assumptions about interest rates, the euro is likely to pay close attention this week when Bundeswehr chief Joachim Nagel and ECB President Lagarde appear publicly on Monday and Friday, respectively.

However, along the way, the minutes of the European Central Bank’s June meeting will expire on Thursday while a number of Fed policymakers are scheduled to speak publicly from Wednesday, which is also when the minutes of the June meeting of the FOMC are released.

Where is the EUR/USD headed?

According to the technical analysis, the general trend for the EUR/USD price is still bearish, and stability below the 1.0500 support will continue to support the bears for a further move down. At the moment, the closest support levels are 1.0380 and 1.0290, which are sufficient at the same time to push the technical indicators towards oversold levels. On the upside, and according to the performance on the daily chart, bulls break through the resistance levels 1.0645 and 1.0800 to make a breach of the current trend.

Since the start of this week’s trading, the price of the EUR/USD currency pair has been in a cautious wait until an update to the European Central Bank’s policy is announced. In addition we are also waiting for the US inflation numbers that will be announced on Friday. These events will chart the course of the currency pair’s movements in the coming days. 

Ahead of these events, the price of the euro against the dollar EUR/USD is settling around the 1.0740 level. The markets are looking forward to the approaching date of the last interest rate hike from the European Central Bank. Bank of America warns that the European Central Bank will raise its key deposit rate well above 0% before the year ends, but this risks increasing retail risks in the eurozone.

In a new research note, Bank of America says it now expects a cumulative 150 basis points of a rate hike this year, 50 basis points more than their previous assumptions. They see big moves of 50 basis points in July and September, which is more optimistic than the market consensus which is currently anticipating a more cautious 25 basis point move in July.

Commenting on this, Ruben Segura Caiwela, Europe economist at Bank of America Europe in Madrid, says: “Our call was already more hawkish than the consensus, it is even more powerful now.” “We cannot see the ECB avoid moving 50 basis points by September at the latest.” Such a surprise could boost the euro’s exchange rates initially, but “we remain concerned that this is too fast”, and in fact, the team of economists at Bank of America describes themselves as “conflicting a hawkish call for the European Central Bank” came in a recent note comes days before the European Central Bank’s June policy update, scheduled for Thursday.

The policy update should see the ECB confirm ending its quantitative easing program with the first rate hike confirmed in July. But a rush to tackle inflation could mean the risks of a eurozone fragmentation rise rapidly, “with Italy in the spotlight”.

“To be absolutely clear, we still don’t understand the ECB’s impulse,” the analyst added. We consider ourselves total bears, because we don’t really understand how the economy can go through a very large energy price shock unscathed in the first place, never mind how the economy is supposed to handle neutral rates when it is so far out of equilibrium. Hence, we expect the economy to stop the central bank after all these hikes this year.”

However, the logic of various members of the European Central Bank’s Governing Council has recently been adopted by Bank of America, including President Christine Lagarde. The ECB has made it clear that it wants to be seen as acting against inflation and to be proactive against the risks of second round effects. Eurozone inflation was 8.1% in May 2022, up from 7.4% in April 2022.

Bank of America is concerned that raising interest rates quickly would put undue upward pressure on the so-called peripheral eurozone countries such as Greece and Italy. They are already paying more than countries like Germany and France on their sovereign debt, and higher interest rates from the European Central Bank will inevitably increase their financing costs.

The danger is that the rising costs of financing for these countries become disorganized and trigger a new crisis.

Moreover, the analyst says that markets are not thinking enough about the prospects of a recession in the eurozone, and “we have the impression that recession risks are more easily recognized in the US than in the eurozone.”

What is the solution to the headache facing the eurozone economy?

More financial support is the solution suggested by Segura Caiwela. “Headwinds are coming from all sides, and fiscal policy, at the moment, is doing very little to offset.” Accordingly, Bank of America suggests a more cautious approach to fiscal policy tools could prevail, in anticipation of higher financing costs on the back of monetary tightening. Meanwhile, a shift in the economic landscape will cause the European Central Bank to rein in its ambition to raise interest rates in 2023.

According to the technical analysis of the pair: We expect unstable movements for the EUR/USD currency pair today, pending the announcement of the European Central Bank’s policy update. We are especially focusing on the tone of his statement and the statements of ECB Governor Lagarde. Any indications of a strong policy tightening path will support more gains for the euro against the dollar, and the closest to them will be 1.0785 and 1.0880, and the last level is important to expect the psychological resistance 1.1000, respectively.

In the event of caution to tighten the bank’s policy, it will give the US dollar the opportunity to launch, and thus breaking the 1.0630 support will push the bears to move strongly downward, as is the case with the general trend of the currency pair.

The pair will likely keep rising as bulls target the key resistance level at 1.0867, which is along the 50% Fibonacci retracement level.

Bullish View

• Buy the EUR/USD and set a take-profit at 1.0864.
• Add a stop-loss at 1.0640.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0700 and a take-profit at 1.0650.
• Add a stop-loss at 1.0750.

The EUR/USD pair continued its recovery trend after the relatively weak US housing data and hawkish statement by Christine Lagarde. It is rising for the third straight day and is trading at 1.0734, which is the highest it has been since April 25th this year. It has jumped by more than 3% from its lowest point this year.

Monetary Policy Convergence

The EUR/USD has been in a strong recovery phase as investors react to the ongoing convergence between the European Central Bank and the Federal Reserve.

The Fed has already made its case that it will continue tightening its monetary policy in a bid to fight inflation. In a statement on Tuesday, the Fed chair reiterated that the bank will deliver a 0.50% rate hike in the upcoming meeting.

Meanwhile, after months of reluctance, the ECB has also become substantially hawkish in the past few weeks. The head of the Dutch Central Bank has said that the bank should hike rates by 0.50%. In a blog post on Monday, Christine Lagarde noted that the bank will likely start hiking in its July meeting.

The next major catalyst for the EUR/USD will be the latest minutes by the Federal Reserve. These minutes will show the depth of the deliberations that the Fed made in its most recent meeting. Still, with what we know, the impact of these minutes will be a bit muted.

The minutes will come at a time when data is showing that the American economy is slowing. Results by Target, Walmart, and Abercrombie & Fitch showed that the retail sector is struggling. Similarly, social media companies have come under pressure after signaling that ad spending is falling.

The other key data to watch will be the latest German GDP and American durable goods orders data that will come out today (Wednesday.

EUR/USD Forecast

The EUR/USD pair formed an inverted head and shoulders pattern for the most part of this month. It managed to move above the neckline of this pattern at 1.0640 this week. It has also risen above the 25-day and 50-day moving averages and is now approaching the 38.2% Fibonacci retracement point.

Therefore, the pair will likely keep rising as bulls target the key resistance level at 1.0867, which is along the 50% Fibonacci retracement level. On the flip side, a drop below the support at 1.0640 will invalidate the bullish view.

While the long-term trend is bearish, there is a likelihood that the pair will keep rising as bulls target the key resistance at 1.0675.

Bullish View

• Buy the EUR/USD pair and set a take-profit at 1.0675.
• Add a stop-loss at 1.0500.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0500 and add a take-profit at 1.0450.
• Add a stop-loss at 1.0550.

The EUR/USD pair moved sideways ahead of key economic events scheduled for this week. The pair is trading at 1.0555, which is about 3.5% above the lowest point this month.

ECB Pressure Continues

The EUR/USD pair has been in a recovery mode in the past few weeks as pressure on the European Central Bank (ECB) remains.

During the weekend, the German central bank president reiterated that the bank should start hiking interest rates as soon as possible in a bid to fight inflation. The concern is that the weakening euro will make push the rate of inflation higher in the coming months.

The key data to watch today will be the latest German business assessment data by the Ifo Institute. Economists expect these numbers to show that the business climate index declined from 91.8 to 91.4. On the other hand, they expect that the current assessment declined from 97.2 to 95.8. At the same time, business expectations are expected to drop from 86.7 to 83.5.

The main concern among German businesses is that inflation and the overall cost of doing business in the country is rising. The situation will likely continue as natural gas prices keep rising in the coming months.

There will be no major economic data from the US and Europe today. Therefore, investors will be focusing on a slew of economic data and events that are set to happen this week. On Tuesday, Christine Lagarde will deliver a speech in which she will likely talk about the next policy actions by the bank.

Her speech will be followed by another one by Jerome Powell of th Federal Reserve. Like last week, Powell will likely insist that the bank will continue with the tightening pace. Other key data will be the FOMC minutes, US durable goods orders, and US GDP numbers.

EUR/USD Forecast

The EUR/USD pair has been in a slow upward trend in the past few days. As it rose, the pair retested the important resistance level at 1.0600, where it struggled moving above in the first week of the month. The pair moved slightly above the 25-day moving averages while the MACD has moved above the neutral level.

Therefore, while the long-term trend is bearish, there is a likelihood that the pair will keep rising as bulls target the key resistance at 1.0675.

There is a likelihood that the pair will resume the bearish trend and retest the lower side of the descending channel at 1.0800.

Bearish View

• Sell the EUR/USD pair and set a take-profit at 1.0800.
• Add a stop-loss at 1.0950.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.0910 and a take-profit at 1.100.
• Add a stop-loss at 1.0850.

The EUR/USD price crawled back as investors waited for the upcoming interest rate decision by the European Central Bank (ECB). The pair rose to a high of 1.0877, which was above this week’s low of 1.0890.

ECB Interest Rate Preview

The ECB will conclude its two-day meeting on Thursday and deliver the highly anticipated interest rate decision.

The decision comes at a time when global bond yields have risen to the highest levels in a few years. It also comes after mixed economic data from Germany.

Data published by Eurostat showed that the bloc’s unemployment rate has crashed to an all-time low, signaling that the labor market is strong.

On the other hand, data shows that the Eurozone inflation has risen to the highest levels in decades. And this trend will continue the longer the crisis in Ukraine continues.

Other numbers show that the manufacturing sector is seeing an impact of supply shortages and high cost of doing business. Business and consumer sentiment has also dropped.

Therefore, analysts expect that the ECB will deliver a relatively cautious statement. The base case is that the bank will leave interest rates unchanged and then sigal that it will start moving later this year. Also, it will likely hint that it will be data-dependent when it comes to raising interest rates and implementing its QT program.

The ECB decision comes at a time when other central banks have become significantly hawkish. On Wednesday, the Canadian and New Zealand central banks delivered strong rate hikes. The Fed has also hinted that it will continue hiking rates.

The EUR/USD pair will also react to the latest US retail sales and initial jobless claims numbers. Economists expect that these numbers will show that retail sales rose by 0.6% in March while core sales rose by 1.0% even as inflation rose.

EUR/USD Forecast

The EUR/USD pair rose in the overnight session. On the three-hour chart, it is approaching the upper side of the descending channel shown in purple. It also moved slightly above the 25-period and 50-period moving averages while the MACD moved above the neutral level. It also retested the important resistance level that was the lowest level on March 11th.

Therefore, there is a likelihood that the pair will resume the bearish trend and retest the lower side of the descending channel at 1.0800.

Today, with the most important event for the euro pairs in the forex market, where the European Central Bank will announce its monetary policy decisions. Despite expectations that the bank will keep interest rates unchanged, the general trend for global central banks, as we watch daily to raise interest rates, investors and analysts are counting on the Central Bank to change and point to the imminent date of tightening his policy.

This explains the upward trend of the EUR/USD currency pair since yesterday, stable around the 1.0892 level, and the most popular currency pair in the currency market crashed to the support level 1.0809 this week.

It must be emphasized that the Russian war has increased pressure on the single European currency, in addition to the consequences of the pandemic, and the exclusion of an imminent date for tightening the European Central’s policy. Economic institutes advising the German government cut their forecasts for Europe’s largest economy – Germany – and warned that a complete halt to Russian natural gas imports would lead to a “severe recession”. The five think tanks said in joint forecasts that German growth this year will slow to 2.7% before rebounding to 3.1% in 2023. The numbers compare with previous forecasts for growth of 4.8% and 1.9%. Inflation will average 6.1% in 2022 – the most in 40 years.

Commenting on this, Stefan Kothes, Vice President of the Kiel Institute for the World Economy, said: “The shock waves from the war in Ukraine are weighing on economic activity on the supply and demand sides.” the prices.”

The report warned that an immediate disruption to Russia’s energy supply could jeopardize 220 billion euros ($238 billion) of economic output in 2022 and 2023. “It would then be important to support marketable production structures without halting structural change,” Kothes added, urging makers to Policies not to provide “poorly targeted transfers to mitigate higher energy prices.”

Germany’s industry-heavy economy is facing major hurdles after the war in Ukraine sent energy prices soaring while disrupting supply chains that were already reeling from pandemic-related crises. Inflation hit 7.6% in the first full month of the war – the highest level since records began after reunification in the early 1990s. Companies are seen as particularly vulnerable because of Germany’s dependence on Russian gas, which the government wants to reduce. Last week, the ruling coalition approved an aid package for struggling companies that includes loans, loan guarantees and capital injections, aimed at helping energy companies in particular.

German industry leaders, including Christian Sewing, chief executive of Deutsche Bank AG, have warned of dire economic consequences if Russian energy supplies are cut off.

According to the technical analysis of the pair: The recent rebound attempt of the EUR/USD did not get the currency pair out of its bearish track, as it is still closer to testing the 1.0800 psychological support, which confirms the bears’ control of the trend. The currency pair’s path may change if it returns to the 1.1200 resistance area, according to the performance on the daily chart. As mentioned before, any attempts by the euro to recover to the highest selling opportunities will remain as long as the Russian war persists and as long as the divergence in economic performance and the future of central bank policy is in favor of the dollar.

Regarding the economic calendar data today: The European Central Bank will announce the update of its monetary policy decisions, and attention will be given to the event in the tone of its policy statement and the statements of ECB Governor Lagarde. On the US dollar front, we will be on a date with a package of the latest important economic data for this week, as the US retail sales numbers will be announced, along with the number of weekly jobless claims and US consumer confidence from Michigan.

ECB disavows any fiscal tightening; EUR loses ground against USD; Eurozone inflation data worsen.

The European Central Bank recently released its monetary policy meeting minutes, showing that the bank’s policymakers supported the decision to continue with an accommodative monetary policy stance until March 2022.

The committee also expressed concerns regarding the future of the Eurozone economy, as they expect the economy to return to pre-crisis levels by the middle of 2022.

European Central Bank President Christine Lagarde recently warned against stopping stimulus measures now that economic recovery is in sight.

“Any kind of tightening at the moment would be very unwarranted,” she commented, adding that doing so could lead to “very serious risks”.

The Eurozone continues to struggle with inflation and the effects that exchange rates are having on it. The recent appreciation of the euro is a matter of concern for policymakers, since it is making exports more expensive and hurting local producers.

“It was pointed out that the nominal effective exchange rate currently stood at an all-time high and that the recent appreciation could contribute significantly to the subdued inflation outlook,” stated the ECB Monetary Policy Committee in its minutes.

The Eurozone economy is expected to rebound by 5.3% this year, as many expect the economy to return to normalcy now that a vaccination campaign is underway.

The ECB Monetary Policy Committee is expected to meet next Thursday.

Economic Calendar

This week, the markets learned some relevant information about the state of the European economy. On Wednesday, Eurostat reported that industrial production stood at 2.5%, against October’s 2.3% and expectations of 0.2%. In yearly terms, it fell by 0.6%, higher than expectations of 3.3% and the previous month’s 3.5% drop.

Euro Loses Ground Against the Dollar

So far this week, the euro has dropped by 0.63%, breaking a two-week gaining streak.

Many link this sudden weakness of the euro with the recent strength of the US dollar, as the markets expect President-elect Joe Biden to announce a very ambitious fiscal stimulus package. Those expectations made traders rush from bonds to stocks and the dollar.

“With labor really struggling, there’s an argument that we could push for a higher stimulus number,” commented an analyst at OANDA. “In the end, markets are anticipating that we’re going to see more stimulus than what is expected in Biden’s first 100 days and that’s why we’re seeing the dollar holding up.”

As we already mentioned, European policymakers have been very concerned regarding the recent appreciation of the euro, as it poses a problem for exporters. Many speculate that this opens the doors for a Forex intervention, though it’s not clear if such a step is likely at this point.

Eurozone Inflation Data Worsen

Since our last report, inflation data have worsened. In yearly terms, the Consumer Price Index fell by 0.3%, higher than expectations of -0.2%. In monthly terms, the Consumer Price Index remained in line with expectations at -0.3%.

Inflation remains too low, taking into account that the European Central Bank aims for a 2% inflation level.

The unemployment rate has improved at 8.3% according to the last reading, and better than expectations of 8.5%.

Gross domestic product data have remained unchanged until now.

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