Forex

EUR/USD Cautious after Ms Lagarde’s Hawkish Comments & Ahead of the Fed’s Decision

Nikos Tzabouras Written by Nikos Tzabouras
  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

The European Central bank hiked rates for the first time in eleven years on Thursday, with the bold 50 basis points lift-off, exceeding the previously communicated plan for a reserved 0.25% move. [1]

The bank expects more tightening ahead, but Ms Lagarde threw the September forward guidance out of the window, saying that this is "no longer applicable". She added that Thursday's outsized hike does not change the "ultimate point of arrival" and that "we are accelerating the exit", in what appeared a dovish press conference.

Over the weekend however, she seemed to offer a Fed-like commitment to fighting inflation, writing that the bank will keep raising rates "for as long as necessary" in order to bring inflation down. [2]

This was a far more hawkish reference, compared to the "further normalisation of interest rates will be appropriate" on Thursday's policy statement, but it is still far from a "whatever it takes approach".

Markets now focus on the Fed's decision on Wednesday, as the policy differential will likely be the ultimate decider of the EUR/USD trajectory.

The US Central bank is much more aggressive as it has already delivered 150 basis points worth of rate hikes and has pointed to an 0.5%-0.75% move, while its intentions around the next meeting in September will be a crucial focal point.

The Fed's aggressiveness however may have peaked, since if it does not break away from its guidance in order to deliver a bolder full percentage point increase, it will likely be even harder to so in the future.

EUR/USD has been consolidating its rebound over the last few days and trades with caution today and may struggle for firm direction ahead the Fed's decision.

The recent rebound has given the common currency the opportunity to push for the 1.0315-50 region, but will need a catalyst for that. A break above this level could potentially fuel a recovery towards 1.0487, although from that level on the technical landscape is unfriendly and we are cautious around its ascending prospects.

Despite last week's gains EUR/USD is in a precarious position and we can see renewed pressure to 1.0072 and another breach of parity, but 0.9856 seems far in the near term.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 25 Jul 2022 https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220721~53e5bdd317.en.html

2

Retrieved 05 May 2024 https://www.ecb.europa.eu/press/blog/date/2022/html/ecb.blog220723~c2b1d4b654.en.html

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Learn More
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.