Bullish View
- Buy the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.0600.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.0600 and a take-profit at 1.0500.
- Add a stop-loss at 1.0700.
The EUR/USD price continued its bullish momentum after the hawkish note by Christine Lagarde. It also rose as volatility in the market declined, dragging the US dollar. It is trading at 1.0680, which is the highest it has been since April 26th.
ECB Tightening
The ECB has been embraced a more cautious tone than other major central banks. While the Fed, RBA, and BOE have all hiked interest rates, the ECB has failed to do so. Instead, the officials have focused on lowering the pace of easing in the past few meetings. As a result, this posture has dragged the EUR/USD close to its parity level against the US dollar.
The situation is now changing, if recent statements by ECB’s officials are to go by. Last week, the head of the German central bank recommended that the bank should start moving in its July meeting. In a separate statement, the head of the Dutch central bank said that the bank should deliver a giant 0.50% hike in a bid to fight inflation.
On Monday, Christine Lagarde penned a lengthy statement explaining her thoughts on tightening. She noted that the bank would start hiking interest rates in July and exit negative rates territory in September. This explains why the EUR/USD pair has risen sharply in the past few days.
The pair will therefore react to a statement by Lagarde that will happen during the American session. In it, she will likely talk more about her thoughts on how rapidly the bank will move from the era of easy money.
Meanwhile, the EUR/USD pair will react to a statement by Jerome Powell. Like last week, the Fed chair will likely reiterate on the bank’s policies. The top economic data to watch will be new home sales and EU and US flash PMIs.
EUR/USD Forecast
The EUR/USD has staged a strong comeback in the past few days. During this time, the pair has managed to move above the important 38.2% Fibonacci retracement level. It has also jumped above the important resistance level at 1.0640, which was the highest level on May 5th. The pair has moved above the 25-day moving average while the Stochastic Oscillator has moved above the overbought level.
Therefore, the pair will likely keep rising as investors target the 50% retracement level at 1.0765. A drop below the support at 1.0600 will invalidate the bullish view.
