26.01.2023 06:39 PM
EURUSD: Can ECB push EUR higher?

If the market does not go in the direction it is expected to be seen, it is more likely to go in the opposite direction. Will this principle of technical analysis work in the case of EURUSD? The main currency pair has been trying to break above 1.09 for many days but neither the growth of American stock indices nor pleasant surprises from European business activity or disappointing statistics on the United States help the bulls. Is it time for a correction?

In fact, the swinging of EURUSD like a pendulum in different directions on the eve of the most important events of the week by February 3 looks logical. The meetings between the Fed and the ECB will clarify the situation. The main thing now is not to rush into the thick of it, and investors prefer to take a wait-and-see attitude.

On paper, the views of both regulators have already been outlined. Many Fed officials are talking about a 25 bps hike in the federal funds rate to 4.75%, with CME derivatives giving a 99.8% chance of that outcome. In contrast, European Central Bank officials are pushing for a 50 bps increase in the cost of borrowing, and the derivatives market agrees with them. It expects a 90 bps increase in the deposit rate at the next two Governing Council meetings. The other thing is, what happens after February?

Christine Lagarde was wrong at the beginning of the cycle when she argued to start with two 25 bps rate hikes. This position is now recognized as too slow, even by the German government. Its economic advisers recommend that the ECB not be hampered by excessive fiscal stimulus and praises its decisiveness after a slow start.

The futures market expects to see the eurozone's borrowing cost peak at 3.4%, a figure that is close to true given Lagarde's words in December that the market underestimates the central bank's resolve.

Dynamics of the expected rate on ECB deposits

This image is no longer relevant

The problem for the euro is that derivatives believe rates will return to their current levels by the end of the year. That is, they predict a "dovish" reversal of the ECB. Indeed, if monetary policy depends on data, and inflation in the euro area begins to slow quickly, why wouldn't the central bank loosen its monetary policy?

This image is no longer relevant

However, it will be possible to talk about this at the middle of the year. In the meantime, investors are interested in the question, if the ECB fails to move the EURUSD significantly higher with the help of "hawkish" rhetoric, will the pair go for a correction? The speeches of the representatives of the Governing Council convince that the rhetoric will definitely be hawkish. Clearly dissatisfied with Bloomberg's insider that the central bank is considering slowing down the speed of monetary restriction, they rushed together to convince the financial markets of this.

Technically, the picture in the EURUSD pair hasn't changed: there is a struggle for the upper limit of the fair value range 1.063–1.089. If it remains in the hands of the bulls, the chances of a continuation of the rally towards 1.095 and 1.104 will increase. On the contrary, the bearish victory will open the door for the euro to correct.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2023
Euro vs US Dollar
Select timeframe
Start trade
Start trade
  • Grand Choice
    Contest by
    InstaForex always strives to help you
    fulfill your biggest dreams.
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
  • 30% Bonus
    Receive a 30% bonus every time you top up your account

Recommended Stories

XAU/USD: After testing 2000.00, what's next?

The absolute focus of investors' attention today is the Fed meeting and the publication (at 18:00 GMT) of its decision on the interest rate. The level of interest rates

Jurij Tolin 13:24 2023-03-22 UTC+2

USD/CAD slides down

The Canadian dollar weakened against its U.S. counterpart on Tuesday as domestic inflation data supported the recent decision by the Bank of Canada to suspend interest rate hikes. Canada's annual

Irina Yanina 10:57 2023-03-22 UTC+2

Gold is losing ground

The higher you climb, the harder you fall. The week to March 17 was the best for gold since the beginning of spring 2020. Like then, there were serious shocks

Marek Petkovich 10:35 2023-03-22 UTC+2

Janet Yellen's speech was to prepare markets for the Fed's monetary policy decisions

Yesterday's speech by US Treasury Secretary Janet Yellen was clearly to prepare markets and investors who are now in disarray for the decision of the Fed. She said

Jakub Novak 10:26 2023-03-22 UTC+2

Markets await the Fed's decision on monetary policy

Markets await how the Fed plans to deal with high inflation and the current banking sector crisis. Most believe that Chairman Jerome Powell will try to balance

Jakub Novak 09:54 2023-03-22 UTC+2

Banking crisis postponed, risk demand ahead of FOMC meeting rises. Overview of USD, NZD, AUD

After a rather severe shock, caused by the bankruptcy of SVB, the fall of the banking sector as a whole and investors' flight from Credit Suisse, which

Kuvat Raharjo 22:47 2023-03-21 UTC+2

Isn't the problem with the dollar the Fed?

Over the past few days, the euro and the pound have been rising rapidly against the dollar. If at some point we could conclude that the whole point lies

Chin Zhao 22:47 2023-03-21 UTC+2

Preview of the March Fed meeting

The US Federal Reserve will announce the outcomes of its most recent meeting in March on Wednesday, March 22. It is important to note that market participants' forecasts

Irina Manzenko 18:46 2023-03-21 UTC+2

EURUSD trades higher amid improving global risk appetite and return of ECB's resoluteness

The markets are acting as if the banking crisis is over. They enthusiastically welcomed the acquisition of Credit Suisse by its rival UBS and the bailout of big lenders

Marek Petkovich 15:10 2023-03-21 UTC+2

USD/JPY: Yen retreated, preparing to jump

It is hard to find a Forex currency that has benefited more from the banking crisis than the yen. While its main competitors in the status of safe-haven assets—the U.S

Marek Petkovich 14:15 2023-03-21 UTC+2
提出您的问题,用 在线帮助.