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- Euro trades at top of its range after hawkish comments from ECB’s Wunsch
Euro trades at top of its range after hawkish comments from ECB’s Wunsch
- Euro vs US Dollar presses the top of its range after hawkish comments from Belgium central bank President Pierre Wunsch
- The pair is in a medium-term uptrend which is favored to extend.
- The US Dollar benefits from strong macroeconomic data which suggests the Federal Reserve will have to continue raising interest rates.
The Euro (EUR) trades in the upper 1.09s versus the US Dollar (USD) as the new week begins. The single currency is underpinned by market expectations of higher interest rates down the line drawing greater capital inflows into Europe. From a technical perspective, the overall trend is up, giving bulls a wind-in-their-sail’s advantage.
EUR/USD market movers
- The Euro is underpinned by comments from Belgian central bank president Pierre Wunsch, who said “We are waiting for wage growth and core inflation to go down... before we can arrive at the point where we can pause.”
- This supports comments from European Central Bank (ECB) President Christine Lagarde who said there is still “some way to go” before the ECB finishes hiking interest rates.
- The US Dollar benefits from US PMI data pushing into expansionary territory.
- USD further underpinned by hawkish comments from St. Louis Fed’s Bullard who expects more rate hikes due to persistent inflation and overblown recession fears.
- Unexpectedly strong first quarter earnings from US megabanks suggests the sector’s March crisis may be in the rear-view mirror, further supporting the Greenback.
- Data out on May 2 could be key according to European Central Bank’s chief economist Philip Lane. It includes the ECB’s Bank Lending Survey (BLS), giving a snapshot of the health of the region’s banks, and April HICP inflation.
- German IFO survey at 08:00 GMT is the next major release on Monday.
- For the US Dollar the Chicago Fed National Activity Index is the most important release, out at 13:30 GMT.
EUR/USD technical analysis: Triangle in an uptrend
EUR/USD continues in a range bound consolidation within a broader medium-term uptrend that started over eight months ago. The odds favor a continuation of the overarching bull trend.
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EUR/USD: Daily Chart
A break and daily close above the 1.1075 year-to-date highs of April 14 would confirm a continuation of the Euro's uptrend to the next key resistance level at around 1.1190, where the 200-week Simple Moving Average (SMA) is situated.
A break and daily close below the important lower high at 1.0830, on the other hand, would bring into doubt the validity of the uptrend and could see losses extend down to a confluence of support at 1.0775-1.0800, and a possible reversal of the dominant trend.
European Central Bank FAQs
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
What is Quantitative Easing (QE) and how does it affect the Euro?
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
What is Quantitative tightening (QT) and how does it affect the Euro?
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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