Selling EUR/USD As ECB Stays Behind the FED on Rate Hikes

The Euro has been bearish against the US since March, as US inflation surged beyond expectations, which has led to the FED turning extremely bullish. They increased interest rates by 75 basis points (bps) in the last meeting last Wednesday, but the USD retreated lower after that, sending EUR/USD above 1.06, from 1.0360.

But, moving averages are providing resistance on the H4 chart and besides that, the ECB hasn’t started hiking rates yet. Italian president Mario Draghi who was also the previous ECB president, commented on a slow pace of monetary tightening after the final CPI inflation report.

EUR/USD H4 Chart – MAs Acting As Resistance Already

EUR/USD reversing lower

Eurozone May Final CPI Report

• May final CPI YoY +8.1% vs +8.1% prelim
• Core CPI YoY +3.8% vs +3.8% prelim

No changes to the initial estimates as euro area inflation is confirmed at a record high above 8% in May.

Italian PM and Previous ECB President Mario Draghi

• ECB rate rises will be more gradual than from the FOMC
• The US has full employment, & US inflation excluding energy and raw material prices is much higher than in the Eurozone
• For this reason, while interest hikes are “inevitable” in Eurozone “the pace of adjustment is bound to be more gradual”

ECB’s Knot said earlier that several 50 bps rate hikes are possible if inflation worsens. But that is not too surprising considering Knot is one of the more hawkish members at the central bank. The challenges to this scenario though will be how the ECB deals with fragmentation risks in the months ahead and also how slowly or quickly will euro area economic conditions deteriorate going into Q3/Q4.

EUR/USD Live Chart

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

Related Articles

EUR/USD Eyes 1.1335 as GDP and PPI Data Drive Market Expectations

3 days ago

Save

EUR/USD Hits $1.1250 After CPI Miss and Tariff Rollback Boost Risk Mood

4 days ago

Save

EUR/USD Holds $1.1110 After US CPI Miss—Is a Break Toward $1.1275 on the Table?

5 days ago

Save

Comments

Leave a Reply Cancel reply

You must be logged in to post a comment.