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EUR/USD calm as Lagarde says disinflation on the right trackThe euro is showing limited movement on Tuesday. In the North American session, EUR/USD is trading at 1.0806, down 0.07% on the day. Earlier, the euro fell as low as 1.0800, its lowest level since Aug. 2. The European Central Bank has been aggressive in its rate-cutting cycle and has trimmed 75 basis points this year. The key interest rate has been brought down to 3.25%, its lowest level since February 2023. There is room for further cuts, as the eurozone economy is struggling and inflation has dropped to 1.6%, comfortably below the ECB’s target of 2%. ECB members are sounding optimistic about deflation, which is necessary for the central bank to continue cutting rates. ECB Governing Council member Peter Kazimir said on Monday that he expects inflation to drop to the 2% target in 2025. Kazimir said he was “increasingly confident that the disinflation path is on a solid footing”. This optimistic view was echoed by ECB President Lagarde on Tuesday. Lagarde reiterated that she expected the inflation target to be reached in 2025 and that the inflation numbers were “relatively reassuring”. Still, Lagarde added a note of caution, saying that services inflation was at 3.9% and the inflation battle was not yet won. The Federal Reserve is expected to continue cutting rates in the final two meetings of the year, but by how much? The Fed showed its aggressive side last month when it started its rate-cutting cycle with a jumbo cut of 50 basis points. San Francisco Fed President Mary Daly said on Monday that the September rate decision was a “close call” and she expected further rate cuts in order to prevent the labor market from continuing to weaken. EUR/USD tested resistance at 1.0833 earlier. Above, there is resistance at 1.0854 1.0793 and 1.0772 are providing support
by OANDA
EUR/USD gains ground as eurozone CPI dipsEUR/USD has edged higher in the European session and trading at 1.0890, up 0.18% on the day. The euro had a strong day on Thursday, gaining 0.50%. Inflation continues to fall in the eurozone, although the drop was very modest. CPI eased to 2.8% y/y in January, down from 2.9% in December and in line with the market estimate. Monthly, CPI declined by 0.4% in January, after a 0.2% gain in December, matching the market estimate. Food and energy prices decelerated in January and were the drivers behind the modest dip in inflation. Core CPI, which excludes food and energy and is a better gauge of inflation trends, dropped from 3.4% to 3.3% y/y but was above the market estimate of 3.2%. This could be a source of concern for policy makers at the European Central Bank, as the core rate remains well above the ECB's 2% target. There are concerns about inflation risks to the upside, with higher transport prices due to attacks on ships in the Red Sea and the Israel-Hamas war. The ECB remains cautious and ECB President Christine Lagarde said last week that the Middle East crisis was an "upside risk" to inflation. Lagarde said this week that the eurozone was "on a disinflationary trend" and that the ECB would be cutting rates. So in which direction is the ECB headed? Lagarde may be signalling that although she is on board for rate cuts, she remains concerned about inflation risks to the upside and may take her time before starting to chop rates. The ECB has kept rates unchanged at 4.0% for four straight months, and the markets are eyeing April or June as the dates for an initial rate cut. All eyes are on the US nonfarm payroll report later today. Earlier this week, the ADP employment report showed a drop in January, from a downwardly revised 158,000 to 107,000. The ADP report isn't considered a reliable guide for nonfarm payrolls, but the markets are expecting NFP to decline as well. The consensus estimate stands at 180,000, compared to 180,000 in December. If the release is wide of the estimate, we could see a strong reaction from the US dollar. EUR/USD is putting pressure on resistance at 1.0905. Above, there is resistance at 1.0938 There is support at 1.0810 and 1.0748
by OANDA
EUR/USD stabilizes after slide, FOMC minutes loomThe euro has steadied on Wednesday after sustaining sharp losses a day earlier. In the European session, EUR/USD is trading at 1.0932, down 0.08% and its lowest level since December 21. The US dollar has been struggling in recent weeks but came flying out of the gates on Tuesday, the first trading day of the New Year. The euro fell 0.88% against the dollar, its worst one-day showing since October. The dollar's spike could be due to profit-taking as the data calendar was light on Tuesday and the dollar gained ground against all of the major currencies. It's a busy day for US releases after a lull during the week of Christmas. The ISM Manufacturing PMI is expected to rise to 47.1 for December, compared to 46.7 in November. The manufacturing sector has been in a miserable slump and hasn't shown expansion since October 2022. Manufacturers have been squeezed by weak demand abroad and high borrowing costs. With the Fed expected to start cutting rates in March, we could see manufacturing respond with increased business activity. The Federal Reserve releases the FOMC meeting of the December meeting later today. The meeting was highly significant as the Fed surprised the markets by failing to push back against rate-cut fever. The Fed signalled that it expected to trim rates three times in 2024, a major pivot from the well-worn script of 'higher for longer'. Investors will be looking for details about the shift in Fed policy which has boosted the equity markets and weighed on the US dollar. Germany and the eurozone will post the December inflation reports on Thursday. Last week, Spain posted lower-than-expected inflation numbers. Inflation has eased to 3.2% in Germany and 2.4% in the eurozone, as the ECB's target of 2% is getting closer. Will the December numbers show inflation continues to fall? If so, the European Central Bank will be under pressure to lower rates. ECB President Lagarde has so far dismissed talk of rate cuts, but she may need to shift her hawkish stance if inflation continues to fall, as the eurozone economy is struggling and could use some relief in the form of rate cuts. There is resistance at 1.1069 and 1.1102 1.0958 and 1.0887 are the next support lines
by OANDA
Euro extends losses after weak PMIsThe euro is down sharply on Tuesday. In the European session, EUR/USD is trading at 1.0969, down 0.62%. The euro hasn't posted a gain since Wednesday. The US dollar has hit a rough patch on market expectations that the Federal Reserve will cut rates up to six times this year and that the current rate-tightening cycle is over. The euro has pummelled the US dollar since November 1, falling 5.3%. The New Year started with manufacturing releases from Germany and the eurozone earlier today. German manufacturing PMI was revised to 43.3 in December from a preliminary 43.1, compared to 42.6 in November and above the consensus of 43.1. The Eurozone Manufacturing PMI was also revised upwards to 44.4, up from 44.2 in the preliminary estimate and above the consensus of 44.2. The manufacturing sector in Germany and the eurozone is mired in a prolonged slump and hasn't shown growth since June 2022. There isn't much to cheer about but there is hope that the worst of the downturn is behind us as we move into 2024. Germany and the eurozone will post their inflation reports on Thursday. Last week, Spain posted lower-than-expected inflation numbers. Inflation has eased to 3.2% in Germany and 2.4% in the eurozone, as the ECB's target of 2% is getting closer. If the data shows that inflation eased in Germany and the eurozone as well, it will put pressure on the European Central Bank to cut rates in the first half of 2024. ECB President Lagarde has pushed back against rate cuts but she may have to shift her hawkish stance or risk tipping the weak eurozone economy into a recession. If the upcoming inflation reports indicate that inflation continues to fall, we can expect the voices in the ECB calling for looser policy to get louder. There is resistance at 1.1069 and 1.1102 1.0958 and 1.0887 are the next support lines
by OANDA
EUR/USD steady as Spanish CPI lower than expectedThe euro is calm in Friday trade. In the European session, EUR/USD is trading at 1.1053, down 0.08%. Spain released the December inflation report today, with CPI dipping to 3.1% y/y, down from 3.2% in November. This was better than expected as the consensus estimate stood at 3.4%. The reading was the lowest rate since August, with the drop attributed to lower prices for fuel, food and electricity. Monthly, CPI rose from -0.3% to 0.0%, but this was lower than the consensus estimate of 0.3%. Core CPI dropped to 3.8% y/y, down from 4.5% in November. Germany, France and the eurozone will follow with their inflation releases next week. If the data shows that inflation eased in December, it will put pressure on the European Central Bank to cut rates in the first half of 2024. The ECB has not followed the Federal Reserve and continues to push back against rate-cut expectations. The markets have priced in 150 basis points from the ECB next year, with an initial cut expected in April. ECB President Lagarde has poured cold water over rate-cut fever, saying that the ECB should "absolutely not lower its guard". Lagarde may have to shift her hawkish stance or risk tipping the weak eurozone economy into a recession. If next week's inflation report indicates that inflation is falling, we can expect the voices in the ECB calling for looser policy to get louder. The US releases Chicago PMI, an important business barometer, later today. The PMI shocked in November with a reading of 55.8, which marked the first expansion after fourteen straight months of contraction. The upward spike may have been a one-time blip due to the end of the United Auto Workers strike as activity rose in the auto manufacturing industry. The consensus estimate for December stands at 51.0, which would point to weak expansion. EUR/USD continues to put pressure on resistance at 1.1086. Above, there is resistance at 1.1171 1.1116 and 1.1031 are providing support
by OANDA
Euro dips on soft Services PMIsThe euro has snapped a four-day winning streak on Friday. In the European session, EUR/USD is trading at 1.0949, down 0.38%. The euro has enjoyed a strong week, with gains of 1.77%. Eurozone Services PMI eased in December, indicating that the economy continues to struggle. The PMI fell from 48.7 to 48.1 and missed the consensus estimate of 49.0. This marked a fifth straight month of contraction in the services sector, with 50 separating contraction from expansion. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected, but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring 1.09% against the US dollar after the announcement. ECB President Christine Lagarde reaffirmed that the Bank would continue its "higher for longer" stance, saying that the Bank was not about to let down its guard and lower rates. Lagarde sounded hawkish even though the ECB lowered its inflation forecast at the meeting. Inflation has fallen to 2.4% in the eurozone, within striking distance of the 2% target. Lagarde acknowledged that inflation was easing but said that domestic inflation was "not budging", largely due to wage growth. There is a deep disconnect between the markets and the ECB with regard to rate policy. ECB President Lagarde poured cold water on expectations for rate hikes, arguing that inflation had not been beaten. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024 and are confident that Lagarde will have to change her stance, with inflation falling and the eurozone economy likely in recession. EUR/USD is testing support at 1.0957. Below, there is support at 1.0905 1.1044 and 1.1096 are the next resistance lines
by OANDA
Euro climbs to two-week high as ECB meeting loomsThe euro has extended its gains in Thursday trading. In the European session, EUR/USD is trading at 1.0925, up 0.45%. It has been a good week for the euro, which has climbed 1.5% against the US dollar. The European Central Bank meets later on Wednesday and is widely expected to hold rates at 4.0% for a second straight time. The markets will be focusing on the rate statement and ECB President Lagarde's post-meeting remarks. Lagarde has been hawkish, stressing the need to maintain rates in restrictive territory for a prolonged period - "higher for longer". The markets are more dovish and have priced in six rate cuts for 2024, with a first cut as early as the spring. The economic landscape in the eurozone could support the market's view. Inflation has fallen sharply and is at 2.4%, within striking distance of the Bank's 2% target. The economy has cooled due to high interest rates and a recession remains a possibility. Will Lagarde push back against market expectations of rate cuts? Or will she set a more dovish stance and avoid ruling out rate cuts? The tone of the rate statement and Lagarde's comments could have a strong effect on the movement of the euro today. The Federal Reserve maintained the benchmark rate at a target range of 5.25%- 5.50% for a third straight time. That was not a surprise but Fed Chair Powell provided plenty of drama as he pivoted from his usual hawkish rhetoric. There had been expectations that Powell would push back against growing speculation that the Fed would trim rates in 2024. Powell not only failed to push back, he signalled that the Fed expected to cut rates three times next year. Powell's dovish message sent equities flying higher and the US dollar tumbling. Just two weeks ago, Powell said it would be "premature" to speculate about the timing of rate cuts and that the door was still open to further hikes. There is still a deep disconnect between the markets and the Fed, as the markets have now priced in six rate cuts in 2024. There is resistance at 1.0964 and 1.1033 1.0862 and 1.0793 are providing support
Editors' picks
by OANDA
6
EUR/USD higher after mixed European releasesThe euro has stabilized on Wednesday and is in positive territory. In the North American session, EUR/USD is trading at 1.0519, up 0.50%. Germany is the largest economy in the eurozone. Once a global powerhouse, the economy has weakened and finds itself in the unfamiliar position of being a laggard in the bloc. Recent economic releases haven't been encouraging, but there was some good news from the services sector today. The Final Services PMI rose to 50.3 in September, up from 47.3 in August and above the preliminary estimate of 49.8. Still, the outlook for services activity remains soft as demand has been weak and service providers remain pessimistic. The Eurozone Services PMI remained in contraction territory with a reading of 48.7 in September. This marked a small rise from 47.9 in August and was higher than the consensus estimate of 48.4. Eurozone retail sales declined 1.2% m/m in August, compared to a revised 0.1% m/m decline in July and below the consensus estimate of -0.3% m/m. The decline was broadly based and will likely weigh on third-quarter GDP. On an annualized basis, retail sales fell by 2.1%, following a 1.0% decline in July. This marked an eleventh straight monthly decline. European consumers are grappling with 6% inflation and real wage growth was negative in the second quarter. Against this backdrop, it's no wonder that consumers are cutting back on consumption. ECB President Christine Lagarde signalled that the central bank is likely done with its rate-tightening cycle. Lagarde said in a speech today that interest rates were at a sufficiently restrictive level to bring inflation back down to the ECB's 2% target. The ECB raised rates at last month's meeting but hinted strongly that interest rates have peaked. The central bank is counting on elevated rates to continue filtering through the economy and cooling down growth and inflation. The ECB has raised rates ten straight times in the current tightening cycle, but the last decision was a dovish hike and a pause at the October 26th meeting would not be a surprise. EUR/USD is testing resistance at 1.0489. Above, there is resistance at 1.0572 There is support at 1.0404 and 1.0321
by fisherkj4
EUR/USD falls to 2-month low on soft Services PMIsThe euro is back to its losing ways on Tuesday, after holding steady a day earlier. In the North American session, EUR/USD is trading at 1.0745, down 0.48%. The euro has faltered badly, losing about 2% since Wednesday and trading at its lowest level since July. ECB Christine Lagarde has been talking about the importance of beating inflation but has shrugged when asked about interest rate policy. Lagarde spoke in Jackson Hole in late August and again on Monday in London, hammering home the messsage that inflation remains too high and the ECB will maintain high rates for as long as necessary in order to bring inflation back to the 2% target. Lagarde's hawkish message in these speeches gave no hints as to whether the ECB would raise rates at its meeting on September 14th. Perhaps she is keeping the markets guessing, but another reason could be that the ECB hasn't yet decided whether to hike or hold, with doves and hawks at the ECB strongly divided on the next move. Inflation remains high at 5.3% but another hike increases the risk of tipping the weak eurozone economy into a recession. Lagarde stressed on Monday that it was critical for the ECB to keep inflation expectations firmly anchored. I can only imagine her frustration today on reading the ECB monthly survey which indicated that inflation expectations for the next 12 months remained at 3.4% in July, and rose from 2.3% to 2.4% for three years ahead. Eurozone inflation has been moving in the right direction, but it appears that bringing it back down to target could take years. Eurozone, German services PMI indicate contraction The services sector has helped carry the eurozone economy at a time when manufacturing continues to decline. However, the expansion in services came to a crashing halt in August as indicated in today's PMIs for the eurozone and Germany. The 50.0 line separates contraction from expansion. The eurozone Services PMI for August was revised to 47.9 from a preliminary 48.3 points. This marked the first contraction in services activity this year and was the weakest reading since February 2021. The news wasn't much better from Germany, the bloc's largest economy. The Services PMI was confirmed at 47.3, the first contraction in eight months and the lowest level since November 2022. The euro has fallen about 0.50% in response to the weak services data, another painful reminder of the fragility of the eurozone economy. EUR/USD is testing support at 1.0716. Below, there is support at 1.0658 There is resistance at 1.0831 and 1.0889
by OANDA
EUR/USD eyes German, Eurozone CPI reportThe euro's mini-rally has run out of steam. EUR/USD climbed 0.80% over the past two days but is trading in negative territory on Wednesday. In the European session, the euro is trading at 1.0867, down 0.11%. The markets will be keeping a close eye on European inflation releases today and Thursday. Germany releases the July CPI report later today, with a consensus estimate of 6.0%, compared to 6.2% in July. The once-formidable German juggernaut is in trouble and inflation remains high. The eurozone releases July CPI on Thursday, which is expected to drop from 5.3% to 5.1%. The ECB meets next on September 14th and ECB President Lagarde may have signalled that another rate hike is coming. Lagarde attended the Jackson Hole summit last week and said that interest rates would remain high "as long as necessary" in order to bring inflation back to the ECB's 2% target. Lagarde's hawkish remarks were more hawkish than her comments at the July meeting, where she said that ECB policy makers had an "open mind" about the September decision. There's no arguing that eurozone inflation remains too high, but the argument against raising rates even higher is that the eurozone economy is not in great shape, and nine straight rate hikes from the ECB have cooled economic growth. Further hikes could tip the economy into a recession, which means that the ECB has its work cut out in deciding whether to raise rates again or take a pause in September. The Federal Reserve is widely expected to hold rates at next week's meeting, and disappointing data on Tuesday may have cemented a pause. The Conference Board Consumer Confidence Index fell sharply to 106.1 in July, compared to 116.0 in August, marking a two-year low. As well, JOLTS Jobs Openings slowed to 8.82 million in July, down from 9.16 million in June and well off the estimate of 9.46 million. This was the sixth decline in the past seven months, a sign that the resilient US labour market is showing cracks. EUR/USD is putting strong pressure on resistance at 1.0896. The next resistance line is 1.0996 1.0831 and 1.0731 are providing support
by OANDA
1
EUR/USD slips to 10-week low after soft German business climateThe euro has posted limited gains at the start of the trading week. In the North American session, EUR/USD is trading at 1.0803, up 0.08%. The week ended on a sour note as German Ifo Business Climate fell for a fourth straight month in August to 85.7, down from an upwardly revised 87.4 and shy of the market consensus of 86.7. Germany's GDP flatlined in the second quarter, after two straight declines. The eurozone's largest economy is sputtering and a string of weak data provides support for the ECB to take a pause at the September meeting. Federal Chair Jerome Powell delivered the keynote speech at the Jackson Hole summit on Friday and his message was one of caution and on the hawkish side. Powell reiterated that the battle to lower inflation to the 2% target "still has a long way to go". The Fed has lowered inflation to around 3% but the hardest part could be bringing it down to 2%. With regard to rate policy, Powell was cautious, saying that the Fed would "proceed carefully" in deciding whether to raise rates or pause and wait for additional data. There was no mention of rate cuts, a signal that the Fed isn't looking to trim rates anytime soon. The markets raised the odds of a rate hike in September in response to the speech, from 14% a week ago to 21% at the time of writing. ECB President Christine Lagarde also attended the Jackson Hole meeting but like Powell, played it safe with remarks that we've heard more than once in the past. Lagarde said that the ECB's rate path would be data-dependent at each meeting and that it was critical that inflation expectations remained anchored at the 2% target. Lagarde tried to sound optimistic, saying she was confident that inflation numbers would look different at the end of 2023. Eurozone inflation is heading in the right direction but is still high at 5.3%. The central bank meets next on September 14th and it's unclear whether the ECB will raise rates for an eighth straight time or take a pause and monitor how the economy is performing. The benchmark rate is relatively low at 3.75%, but the eurozone economy has not looked good and higher rates increase the chances of the weak economy falling into recession. . EUR/USD is putting pressure on resistance at 1.0831. The next resistance line is 1.0896 1.0795 is a weak support level. Below, there is support at 1.0731
by OANDA
EUR/USD - Will Lagarde shake up the euro?EUR/USD has edged lower on Wednesday. In the European session, EUR/USD is trading at 1.0939, up 0.20%. The German GfK Consumer Sentiment report found that consumer confidence is expected to fall in July to -25.4, down from a downwardly revised -24.4 in June. The report noted that the German consumer is reluctant to spend due to economic uncertainty, and high inflation has eroded the purchasing power of households. The consumer confidence release comes on the heels of the German Ifo Business Climate index, which fell from 91.7 to 88.5 in June. This missed expectations and marked the index's lowest level this year. The weak confidence numbers highlight a persistent lack of confidence in the German economy. The ECB, which continues to signal that more rate hikes are coming, finds itself between a rock and a hard place. The Bank's number one priority is curbing inflation, which will require more rate hikes. However, tightening too quickly runs the risk of choking economic activity and tipping the German economy into a recession. How far will the ECB go in raising interest rates? Investors hope to get some clues from ECB President Lagarde later today when she participates in a panel on policy at the ECB bank forum in Sintra. Lagarde said on Tuesday that eurozone inflation remains too high and reiterated that ECB policy "needs to be decided meeting by meeting and has to remain data-dependent.” In the US, Tuesday's strong releases were further proof of a solid economy. Durable Goods Orders and New Home Sales were higher and beat expectations, and Conference Board Consumer Confidence jumped in June from 102.5 to 109.7, its highest level since January 2022. These strong releases will provide support for the hawkish Fed, which is expected to raise rates in July and again in September or October. EUR/USD is putting pressure on support at 1.0916. Next, there is support at 1.0822 1.0988 and 1.1082 are the next resistance lines
by OANDA
Price Waiting for News Releases | Tech/Fundamental Analysis Traders, today we have those news releases for Wed, 28 Jun 2023.. Buyside liquidity then sellside liquidity.. Use these news as your trigger and most importantly, confirm your entry.. This view is linked to my previous view, please review it.. Price may reprice higher than H2 FVG and into my "sell area" marked in my previous idea.. Those are areas of "possible" reversal points, and entry should be confirmed in the proper time.. I'll keep you updated ✅
Short
by MST_Trader
Euro drifting, markets eye PMIsThe euro showed some volatility at the start of last week but since then it has been in calm waters and has stayed close to the 1.0.7 line. We'll get a look at eurozone and German PMIs on Tuesday. The ECB has been criticized for sending mixed messages to the markets, but Christine Lagarde was crystal clear last week when she told EU lawmakers that “in view of the underlying inflation pressures we intend to raise interest rates by another 50 basis points at our next meeting in March”. Lagarde said the ECB would then evaluate future moves, but with inflation still high, the risks for further rate hikes are skewed to the upside. The ECB's primary focus is to tame inflation. Headline inflation fell to 8.5% in January, down from 9.2% in December, but is still unacceptably high. Core CPI has been stickier than expected and wage increases are stemming the drop in inflation. ECB member Isabel Shnabel said last that investors risk underestimating inflation, a warning that the Fed has also made to the markets that have consistently been more dovish about rate policy than the Fed. Schnabel noted that the disinflation process has not started in the eurozone, another signal that the central bank will remain in a hawkish mode for the near future. Fed members continue to pound out the message that inflation remains too high and more rate hikes are needed. Investors are clearly concerned that the Fed will make good on these statements, which has sent risk sentiment lower and the US dollar higher. The markets had high hopes that the March rate increase would be a 'one and done', but it looks like the Fed will continue raising rates into the second quarter. According to CME's FedWatch, the markets have priced in an 83% of a 25-bp hike and a 17% of a 50-bp increase. EUR/USD is testing resistance at 1.0704. Above, there is resistance at 1.0795 1.0604 and 1.0513 are the next support lines
by OANDA
European Central Bank Preview – Time to PivotDespite facing the unknown external shock of a war, the Eurozone economy’s growth has been resilient in the first three quarters of the year. Eurozone Gross Domestic Product (GDP) rose by 0.3% quarter-on-quarter (QoQ) in Q3, easing from a 0.8% increase in Q2 2022 aided by the rise in government spending alongside an improvement in inflation adjusted trade surplus . However, this is likely to change in Q4 2022 and Q1 2023 as COVID reopening demand fades. Eurozone recession remains a key risk until Q1 2023 Europe is set to embark on a harsh winter, and with savings rates extending the decline from a 1.7% drop in Q2, consumer spending is likely to come under pressure. The 1.8% month on month falls in euro area retail sales in October is consistent with the notion that real income squeeze is now catching up the with consumers. Services spending rose only 1.5% in Q3 compared to the 3.1% jump in Q2 2022 . The labour market has remained fairly resilient as Eurozone unemployment hit a new low of 6.5% in October, pushed down by falling unemployment in Southern Europe, the Netherlands, Finland and Austria. However, unemployment is likely to rise as the economic slowdown and tightening financial conditions impact hiring. That being said, fiscal policy could come to the rescue as major Eurozone governments have earmarked €573Bn into the economy to shield the private sector from the upcoming fallout in economic activity. Inflation in the Eurozone declined more than expected from 10.6% in October to 10% in November. Yet it’s hard to say for certain that the inflation rate has passed its peak as it is largely dependent on the fluctuations in energy prices. Core inflation remained at 5% in November and is likely to remain close to 5% through Q1 2023 . Companies continue to transfer higher input costs to consumers and in spite of an approaching recession, we expect this process of cost-push inflation to extend into 2023, keeping price pressures higher for longer. European Central Bank (ECB) split between the doves and hawks Ms Isabel Schnabel (a member of the executive board of the ECB) warned in November that loose fiscal policy risks adding to underlying inflation pressures by boosting consumption and reducing the incentive for consumers and businesses to save energy. We would argue that while the volume of relief packages is large, they are insufficient to provide complete relief for all consumers and companies. Ms Schnabel also noted that, “that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the ‘neutral rate’”. This hawkish sentiment was echoed by Dutch central bank head Klaas Knot in his statement that risks are tilted towards the ECB doing too little to combat rising inflation, noting that an economic slowdown, or perhaps even a recession, is needed to bring inflation under control. President Lagarde stressed that she would be surprised if inflation has already peaked, as there is too much uncertainty regarding the pass-through of high energy costs at the wholesale level into the retail level. She added that the ECB may have to go into restrictive territory with key rates. On the other hand, the head of the French central bank, Villeroy, who has often anticipated the actual ECB decisions in his statements, spoke out in favour of 50 basis points. Even hawks such as Bundesbank President Nagel and Estonian Mueller seem to be able to come to terms with a hike of just 50 basis points. Further clarity on Quantitative Tightening (QT) The ECB is likely to meet consensus expectations this week of narrowing the pace of rate hikes to 50Bps on 15 December, following two 75Bps rate hikes in September and October. This decision will lift its deposit and refinancing rates to 2% and 2.5% respectively. Neither peaking inflation nor a recession will give the ECB a reason to hold back from raising rates in Q1 2023, but both suggest that risks are tilted towards a slower pace of tightening. The outlook for the balance sheet, and more specifically QT, will be another key theme at this week’s meeting. It will be interesting to see whether the ECB will be pressed to sell bonds outright or stick with roll-off. We would expect the central bank to begin with an Asset Purchase Program (APP) roll-off equivalent to a monthly reduction of €25Bn in the balance sheet on average. Currently the ECB is still using Pandemic Emergency Purchase Programme (PEPP) reinvestments to compress spreads and the Transmission Protection Instrument (TPI) remains at its disposal if conditions deteriorate further. Both these tools limit how far the ECB can go with QT. Sources: 1Eurostat as of 30 November 2022 2National Accounts as of 30 November 2022 3Bruegel as of 31 October 2022 4Bloomberg as of 30 November 2022
FRED:ECBASSETSW
by aneekaguptaWTE
EURO bulls might take a little break and then go up towards 500!Euro bulls are having trouble to stay above 250 and I don't expect them to break up towards 300 early next week either, even though they could always surprise me. I expect them to reach 500, but I think its safer to wait for a re-test of parity first or for a clean break above 250, so they would actually manage to stay above. So for me the week will start in waiting mode. If we start with a downmove...I will wait for when it stops, if at the 100 level again or if it breaks below, towards parity.
Long
by from1tomillion
Euro stems slide but still below 1.05The euro has edged higher on Thursday, after posting losses in two consecutive sessions. The markets were treated to a data dump out of the eurozone, with some mixed numbers. On the employment front, the eurozone unemployment rate fell to 6.6%, down from 6.8% (6.7% exp.). Germany reported 133 thousand newly unemployed, a huge increase, but this reading was an anomaly due to the influx of Ukrainian refugees into the labour market. German retail sales for May bounced back with a modest gain of 0.6%, after a dismal -5.4% slide in April. Investors are keenly awaiting Eurozone CPI for June, which is expected to hit 8.4%, up from 8.1% in May. With no inflation peak in sight and the ECB revising downwards its growth forecast, the spectre of stagflation in the bloc remains very real. At the ECB forum this week, Lagarde sounded hawkish and downplayed concerns about a recession, although there is good reason to be sceptical about her optimism. Inflation continues to hammer away at consumers and businesses. The energy situation with Russia continues to deteriorate and the standoff between Russia and the West is only getting worse, with Finland and Sweden applying to join NATO and the Ukraine war grinding on. In the US, there was some good news for a change on the inflation front. The Fed's preferred inflation gauge, the Core PCE Price index, was unchanged at 0.3% MoM in May, a notch below the estimate of 0.4%. However, earnings dropped sharply to 0.2% in May, compared to 0.9% in April. This could be a sign of the toll the cost of living crisis is taking on US consumers. Federal Reserve Chair Powell has downplayed the likelihood of a recession in the US, but as is the case with ECB President Lagarde, many market participants are less optimistic. EUR/USD is testing resistance at 1.0482. Above, there is resistance at 1.0544 There is support at 1.0408 and 1.0346
by OANDA
EUR/USD: Bears regain control and revisit 1.0730 31 May 2022, EUR/USD comes under pressure following recent tops. Germany labour market report, EMU Flash CPI next of note. US Consumer Confidence next on tap in the US docket. Sellers seem to have regained the upper hand and now drag EUR/USD back to the 1.0730 region on turnaround Tuesday. EUR/USD meets resistance just below 1.0800 Following three consecutive daily advances, EUR/USD now retreats to the 1.0730 after climbing to new monthly highs near 1.0790 at the beginning of the week. The so far corrective move in the pair comes in tandem with the resumption of some buying interest in the greenback, as US markets slowly return to the normal activity following Monday’s Memorial Day holiday. The ongoing decline in the pair also falls in line with the knee-jerk in the German 10y Bund yields, which retreat to the 1.04% region on Tuesday. In the domestic calendar, the German labour market report is due seconded by the preliminary inflation figures in the broader Euroland for the month of May. Across the pond, results from the housing sector are due ahead of the Consumer Confidence print tracked by the Conference Board. What to look for around EUR EUR/USD’s bounce off 2022 lows near 1.0350 (May 13) has been so far underpinned by unusual hawkish ECB-speak leaning towards an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency. In addition, the renewed selling bias in the greenback has also collaborated with the multi-cent upside in the pair, as investors appear to have already pencilled in a couple of 50 bps rate hikes at the June and July gatherings. However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, elevated inflation and a decent pace of the economic recovery in the euro bloc are also supportive of an improvement in the mood around the euro. Key events in the euro area this week: Germany Unemployment Change, Unemployment Rate, EMU Flash Inflation Rate (Tuesday) – Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, ECB Lagarde (Wednesday) – Germany Balance of Trade, Final Services PMI, EMU Retail Sales, Final Services PMI (Friday). Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro area. Impact of the war in Ukraine on the region’s growth prospects. EUR/USD levels to watch So far, spot is retreating 0.30% at 1.0741 and a breach of 1.0641 (low May 25) would target 1.0532 (low May 20) en route to 1.0348 (2022 low May 13). On the other hand, the next up barrier emerges at 1.0786 (monthly high May 30) followed by 1.0936 (weekly high April 21) and finally 1.0981 (100-day SMA).
by sniper_2022
Euro RecoveryEuro pair recovered nicely after an extended wave 5 which is not very common for currencies, however this pullback might reach previous tops meaning 1.0930 and if broke 1.1183. i prefer to trade the euro for a long position however the best entry is to wait for a minor pullback near 1.0630 area. in addition to the conference of president Lagarde tomorrow in which we expect a much more tightening talk from the ECB in regards to the rate hikes or any verbal intevention.
Long
by josephdahrieh
EUR/USD - Bullish Breakouts Coming?The euro surged at the start of the week after ECB President Christine Lagarde laid out a very clear path for tightening in the coming months. This is extremely out of character for Lagarde which perhaps highlights the urgency with which the ECB is now approaching the inflation problem. From intentional ambiguity to a very specific path - a rate hike in July and an end to negative rates by the end of the third quarter - it's a huge change from how the central bank has been in recent years. The markets were already expecting the ECB to start hiking but this confirmation highlights how important it is to start doing so straight away. They've already dragged their feet but they must now avoid waiting too long once they acknowledge the problem. The euro rallied strongly today, aided by a softer dollar in this particular pair, and if we get more of this kind of commentary in the coming weeks, it could go a lot further. The pair has run into a little resistance today at 1.07, around the 200/233-period SMA band on the 4-hour chart. It has traded below this over the last few months and it's capped multiple rallies in that time. A break above here could be significant. Above here, 1.0850 is a very interesting level where the 61.8 fib intersects the top of the descending channel and the 55/89-day SMA band. A move above here may suggest a much bigger correction is on the cards.
by OANDA
Tidying Up...Flows into USD continue with yields unlocking potential for flattening. The latest breakdown in euro is calling for a reassessment across all charts, did not expect the pullback to come this far, so we will go through the process over the coming sessions. An interesting environment, we are in the middle of summer with thin liquidity and technical discipline needed. ↳ Eyeballing 1.162x for strong support, Nov-20 lows should be enough to lean on. ↳ Looking at the macro charts below, the price action is supportive and we should see 1.161/1.162 comfortable hold a breach below the 1.15 barrier will imply the LT base is not yet complete and unlock a test of parity (not expected). ↳ Inflation can provide the momentum above 1.185x (30th July highs) and indicate we are already on track for the 1.21 and 1.25 initial targets in this next wave.
Editors' picks
Long
by ridethepig
38
EURJPY itching to resume bull trendUpdates coming here after the Jackson week Bearish JPY and looking to play versus EUR . Actively adding here as the l/term uptrend is set to resume, we can look to target fresh highs here at 134.1x and continue to expect JPY to underperform in Q3 and Q4. Indeed the break is signalling in advance that the direction is still up. Price action above 129 is proving interesting, the break of 'B' will define whether there is a chance of another pullback or the move is direct and imply the base has materialised.
Long
by ridethepig
2