EUR/USD News and Analysis
- ECB Kazaks see 2 to 3 rate hikes in 2022 as “quite reasonable”
- US and EU PCE inflation data on the horizon
- Updated EUR/USD technical levels are considered
ECB Kazaks in Favor of 2-3 Increases in 2022
Martins Kazaks, governor of Latvia’s central bank has stated that the view to climb 2 to 3 times this year is “a fairly reasonable view to take”. He added, “a rate hike in July is possible” but justified his statement by saying that it didn’t matter whether the first hike was in July or September but preferred July. Kazaks are considered one of the ECB’s rather hawkish governing council members and joined calls by other members to immediately end asset purchases and start raising rates in an effort to ease inflation.
Growth Concerns Confirmed by IMF
The ECB’s ‘phased’ approach to phasing out the Asset Purchase Program (APP) is compounded by what is likely to be a 50 basis point hike from the Fed next week, putting the euro in a tough spot. Not only that, the IMF revised its 2022 eurozone growth forecast lower, from 3.9% to 2.8% with Germany accounting for the bulk of the weaker outlook.
Germany is the EU’s largest economy seen declining 1.7% in anticipation, GDP growth in 2022. In contrast, the US is only expected to decline 0.3% from the January GDP growth forecast, reaching 3.7% for the year. All figures refer to real GDP (expected nominal GDP – inflation expectations)
The Interest Rate Difference is set to Extend Further
According to current expectations derived from the Federal funds futures market, the market expects an additional percentage point increase in the Fed funds rate before the ECB can reach release on July 21stst – the date being observed for the ECB’s first rate hike in a few years.
EUR/USD Key Technical Levels
It seems like we’ve seen the same chart for centuries and that’s because we’ve seen it before. The decline of the euro has been well telegraphed meaning all that is left is to see EUR/USD hit various technical levels on the way down. Currently, the low of 1.0635 2020 is within reach and is the closest significant level for support. A monthly chart is needed to assess the next support level for EUR/USD (below). In a downtrend market, the broken support naturally turns into resistance and resistance during the entry at 1.0758.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
The weekly chart highlights the next major support level around 1.0310 – 1.0473 (orange rectangle). It is a relatively large zone but has pushed prices lower in 1997, 1999, 2015 and 2017.
EUR/USD Monthly Chart
Source: TradingView, prepared by Richard Snow
Key Risk Events in the Next Week
On Thursday the advance GPD figures for the US are expected, already showing much lower expectations than previous figures.
We then look at both EU and US inflation data which is not expected to change the current narrative if we see prints in line with or exceeding expectations, however, we could see a temporary fall in the dollar basket (DXY) if US inflation figures rise well below expectations due to by the fact that the market has been aggressively setting higher rate hikes throughout the year. Thus, a downtrend shock could result in a re -pricing of the dollar as the market tapers to expectations of a rate hike.
Then the big, FOMC rate -setting meeting, takes place next Thursday on May 4thke.
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— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
