There is little change in the performance of the euro currency pair against the US dollar EUR/USD amid a week of quiet trading dominated by the bears. The currency pair fell towards the support level of 1.0669 within strong sales following the announcement of the US jobs numbers. The announcement gave a positive wound to the US dollar because it supports the central bank's policy.
The euro/dollar settled around the 1.0710 level at the time of writing the analysis. The EUR/USD currency pair will remain subject to the monetary policy signals of the European Central Bank and the American Federal Reserve Bank amid the absence of influential economic releases.
Monetary Policy
According to European Central Board Member Martins Kazak, "the European Central Bank should raise interest rates to levels that are constraining the economy "significantly", this member argued that the increases may need to continue beyond the next meeting in March.
Describing inflation risks as "still tilted to the upside", Latvia's hawkish central bank chief added that the final peak in borrowing costs would have to be maintained for a while to ensure the eurozone's worst-ever rate hike is tamed. He also added "we will raise the rates significantly in a restricted area and we will stay there for some time". He also said: "It is natural to expect rate increases to slow down to smaller increases, but we are not there yet." And "I strongly agree with the 50 basis point increase in March, and after March I see no reason to pause or stop the interest rate increase." "
The statements confirm the continued desire among many officials of the European Central Bank for more large moves in interest rates - even as the US Federal Reserve Bank slows down the pace of its own increases.
While the Baltic region saw inflation rise to more than 25% at its peak, it is now falling, as is the case in the 20-nation eurozone. This didn't stop the European Central Bank from raising borrowing costs by another half point last week and revealing plans for a similar move next month. The fear now is core price growth, which hit a record high in January. With the headline figure down largely thanks to lower energy costs due to the weather, executive board member Isabelle Schnabel said on Tuesday that the European Central Bank's unprecedented monetary tightening so far has had little effect on prices.
For his part, the head of the German central bank, Joachim Nagel, warned on the same day not to underestimate the inflation challenge, and told the German newspaper Boersen-Zeitung that "significant" increases in interest rates are needed.
Dutch Central Bank President Claas Knott said on Wednesday that another half-point move may be warranted at the European Central Bank meeting in May. Kazak added that investors should heed comments from European Central Bank President Christine Lagarde, who vowed that the European Central Bank would "continue the course" of returning inflation to the 2% medium-term target from more than four times that now.
Capital markets are pricing the peak deposit rate at around 3.5% – up from 2.5% currently and below zero as recently as mid-2022.
Forecasts for the euro against the dollar EUR/USD today:
- There is no change in my technical view of the performance of the EUR/USD currency pair.
- Based on the performance on the daily chart below, it appears that the EUR/USD currency pair has recently completed a bearish breakout from the formation of an ascending channel.
- This indicates a sudden change in market sentiment from bullish to bearish.
Therefore, the bearish speculators will target more bearish profits at around 1.0534 or lower at the 1.0368 support. On the other hand, the bulls will look to pounce on profits around the 1.0865 resistance or higher at the 1.1028 resistance.
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