EUR/USD Continues the Uptrend After ECB Lagarde’s Comments on Interest Rates - Forex News by FX Leaders
ECB's Lagarde expected to speak later today

EUR/USD Continues the Uptrend After ECB Lagarde’s Comments on Interest Rates

Posted Monday, May 23, 2022 by
Skerdian Meta • 2 min read

The market is in a more positive mood to kick start the new week, with risk trades being spurred on after mostly coming under pressure over the past two months. Equities are hoping to post a bit more of a recovery with US futures keeping 1% higher, aiding the mood in Europe with major indices in the region and also posting a slight advance on the session.

The optimism was also helped a little as US president Biden said that China trade tariffs may be under consideration to be lifted/reduced but there was an exchange of blows regarding Taiwan. That has risk assets and the euro move higher on the day with gains extending to 1% against the USD which continues to retreat as EUR/USD goes to 1.0675 from around 1.0610 earlier. We are planning to open a long term short signal on this pair around 50 pips higher at 1.07 where the 50 SMA (yellow) stands on the daily chart, so please follow our forex signals page for live trade ideas.

EUR/USD Daily Chart – Heading Toward the 50 SMA

EUR/USD is overbought on the daily chart as stochastic shows 

In case you missed it earlier this morning, the ECB president Lagarde pretty much solidified a July rate hike and talked up moving rates out of the negative territory by the end of Q3.

ECB President Christine Lagarde

  • We are likely to be in a position to exit negative rates by end of Q3
  • I expect APP to end very early in Q3
  • This would allow a rate hike to take place in July, in line with forward guidance
  • If inflation stabilizes around 2% in the medium-term, a progressive further normalization towards neutral rate will be appropriate
  • But the pace and overall scale of the adjustment cannot be determined ex-ante
  • The situation currently faced is complicated by the presence of negative supply shocks
  • There are arguments for gradualism, optionality, and flexibility when adjusting monetary policy
  • We have one important guidepost for policy, which is to deliver 2% inflation over medium-term
  • ECB will take whatever steps are needed to do so
  • Full blog

If there were any doubts about the recent hawkish shift by the ECB, they look to be quashed by Lagarde’s comments above. That’s a big signal of a significant policy shift by the ECB, that is if things do actually go their way.

The big issue now is stagflation risks and how will the ECB cope if the euro area economy is going to be facing a recession later in the year. That’s the major caveat to any aggressive tightening policy cycle that they may have planned.

EUR/USD Live Chart

 

EUR/USD

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