EUR/USD Forecast: How ECB Noise Could Impact The Euro’s Performance

Posted Wednesday, January 18, 2023 by
Arslan Butt • 2 min read

The EUR/USD rate dramatically declined even with a soft US dollar. The euro fell after market rumors indicated that officials from the European Central Bank contemplated decelerating their tightening. Reports suggest the ECB will raise its benchmark rate by 50 basis points (bps) in February, followed by 25 bps increments in March. The EUR/USD is currently trading near its intraday low of 1.0773.

Philip Lane, the Chief Economist of the European Central Bank, recently remarked that to bring rates and inflation back on target, central bank tightening must pause. This had an impact on the euro. On the other hand, he made it clear that the central bank needs to push rates to higher levels for them to take a different direction. In addition, he added that rates “need to be raised further” before making any changes.

The US dollar weakened in value as bond yields dropped due to speculation surrounding the ECB. Italy’s 10-year note yield fell more than 15%, resulting in the US Treasury 10-year benchmark rate decreasing to 3.52% from its previous intraday high of 3.58%.Euro Zone data was a mixed bag. Germany’s December Harmonized Index of Consumer Prices (HICP) came in at 8.6% year-on-year growth. Figures from the January ZEW Survey in the country revealed that economic sentiment had risen to 16.9, which was higher than expected. It was even better at 16.7 for the Euro Zone.

Unfortunately, the Current Situation Index dramatically dropped to -58.6. Meanwhile, The NY Empire State Manufacturing Index for January in the US exhibited a sharp decrease from -11.2 in December to -32.9. This Wednesday, the EU will give us the finalized data of December’s Harmonized Index of Consumer Prices (HICP). It is predicted to have gone up 9.2% year-over-year.

In contrast, the US will report December’s Producer Price Index (PPI). Market analysts predict an annual growth rate of 5.9%, slower than the 6.2% seen in November. Additionally, retail sales figures are expected to have grown by a modest 0.1%.

EUR/USD Technical Outlook

The EURUSD pair has been stuck in a narrow range all morning, as it is still stuck in a bullish pennant pattern. To continue its upward trend and hit its next main target of 1.0915, the price must remain above 1.0745.

Analysts think the exchange rate will move between 1.0750 and 1.0920 today, with 1.0750 being a support level and 1.0920 being a resistance level.

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