Recovery accelerates on signs of more aggressive ECB
Bounce from new 20-year low, after larger bears got trapped under parity level, extends into third straight day and accelerates on Tuesday.
The Euro was lifted by weaker dollar and received fresh support on signals that the ECB, at their policy meeting on Thursday will discuss the size of a rate hike, as rising inflation prompted policymakers to consider more aggressive steps, bringing on the table the possibility of 50 basis points hike, against the central bank’s initial decision to start tightening policy with 25 basis points raise.
Although the ECB remains cautious and doesn’t want to choke the economic growth by a stronger rise of the borrowing cost, the conditions are worsening that prompts policymakers to act accordingly.
In addition to high inflation, the other major concerns for the ECB is the gap between the monetary policies of the US and EU central banks.
The gap has opened after the Fed started to raise interest rates, while the ECB remained on hold and has tripled until now, with worries that it will widen as the Fed is expected to double its interest rate to 3.5% by the end of the year, while the ECB rates are seen just over 1%.
The darkening economic outlook also heavily weighs on the single currency, as the EU is facing a huge problem with a gas supplies from Russia, which are currently lowered due to maintenance, but fears are growing that supply cut may become permanent that would have strong negative impact on the whole economy.
Inflation in the Eurozone rose to 8.6% in June, in line with expectations, adding to possible more aggressive ECB’s action on Thursday.
Technical picture has improved, as indicators on daily chart are heading north and the latest acceleration broke above important Fibo level at 1.0205 (38.2% of 1.0614/0.9952 bear-leg), though positive signals still require confirmation on lift above 1.0283 (50% retracement /daily Kijun-sen).
Res: 1.0283; 1.0349; 1.0361; 1.0400
Sup: 1.0220; 1.0205; 1.0175; 1.0108