EUR/USD Powers Through in the Aftermath of the ECB’s Hawkish Action & Messaging
The common currency rallies today, in the aftermath of last week’s “jumbo” rate hike by the European Central Bank and the hawkish rhetoric by policy makers
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The common currency rallies today, in the aftermath of last week’s “jumbo” rate hike by the European Central Bank and the hawkish rhetoric by policy makers
The pair remains upbeat, without any big reaction to today’s somewhat mixed economic data from the UK, after last week’s rebound form the multi-decade lows
The Japanese Yen manages to elicit support from the verbal interventions we have seen over the last few days, sending the pair lower today
The ECB has front-loaded and communicated that it is fully determined to do more, but the market may not be buying into the narrative. If the central bank cannot significantly impact Eurozone inflation, the higher rates won't bring inflation down to its target but will adversely affect economic activity.
Initially, the deficit spending and tight monetary policy may add support for GBPUSD. However, PM Truss has also promised to slash taxes, costing £38bn pa. This deficit increase may adversely affect the UK risk premium as gilts feel the pressure, ultimately exerting pressure on GBPUSD.
The real rate has been appreciating since its low in Nov 2021. However, the Fed March statement (red dashed vertical) was the first confirmation of quantitiative tightening (QT). Six weeks later, the real rate turned positive.
The pair extends this week’s rally to levels not seen since August 1998, as USD strength persists and markets brush aside JPY verbal intervention
The hourly chart on the right is instructive. The EURUSD gapped down on the market open following Gazprom's announcement that it shut off Russia's gas supply to Europe via its Nord Stream 1 pipeline. The EURUSD found support at the S2 pivot.
EURUSD charts potential continuation pattern on the daily timeframe.
USDOLLAR short-term analysis - 31 August 2022
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