The exchange rate of the euro currency pair against the US dollar, EUR/USD, is still stable around its highest gains in eight months, with retracement gains this week. It reached the resistance level of 1.0776, before settling around the level of 1.0745 at the time of writing the analysis. Important events this week was the announcement of inflation numbers. The US, which has a strong reaction to the future of US interest rate hike expectations, which recently calmed down after the US job numbers were announced.
On the other hand, the euro gained strong momentum from the future tightening of the European Central Bank's policy, as well as calming fears about the future of energy insurance for the eurozone in light of the continuation of the Russian-Ukrainian war. On the monetary policy front, according to ECB Governing Council member Robert Holzmann, "only a slowdown in core inflation can change the ECB's resolve to raise interest rates."
The official added that while there is hope that core consumer price gains have peaked, this is not the case for core inflation. And officials should monitor the latter closely. “As long as core inflation has not peaked, a change in core inflation will not make a change in our design,” added the head of Austria's hawkish central bank in Vienna.
Holzmann's comments chimed with the hawkish tone of European Central Executive Council member Isabel Schnabel, who said on Tuesday that rates must continue to rise substantially - even after inflation in the eurozone fell back into single digits for the first time since last August. Underlying price growth advanced to a record high last month as the sharp rise in energy costs continued to trickle down into goods and services.
The economic backdrop in Europe has become more conducive to further hikes as unusually warm weather has pushed down natural gas prices, providing households with some relief. Goldman Sachs boosted its growth outlook this week and no longer sees a recession.
The ECB deposit rate, currently at 2%, will ultimately remain a major question. Bank of France Governor François Villeroi de Gallau reiterated on Tuesday that the peak must be reached by summer, refusing to speculate on how high interest rates will be. Given the high degree of uncertainty, it's too early to discuss a so-called final price, according to Holzmann, although he agrees with Villeroy's timeline. "Whether or not it will be done by four times another 50 basis points will be on display," he added. “But we are certainly there to act quickly, in a timely and assertive manner.”
EUR/USD forecast today:
Until the announcement of US inflation figures later today, I do not see any change in my technical expectations for the performance of the price of the EUR/USD currency pair.
- The bulls control continues.
- The performance may remain the same until a strong reaction from investors.
- Breaking the psychological 1.0800 resistance is important for the bulls to gain more control over the direction.
- It will move the technical indicators towards overbought levels.
On the other hand, according to the performance on the daily chart, the move of the EUR/USD pair towards the support level at 1.0590 will be important to end the current bullish expectations. I still prefer to sell the EUR/USD from every bullish level.
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