EUR/USD Mixed After Thursday’s ECB-Fuelled Rally
ECB Decision
The European Central Bank did not make any changes to its policy on Thursday and reiterated its plans for the step-by-step reduction in asset purchases.
It will discontinue the Pandemic Emergency Purchase Programme (PEPP) at the end of March, while monthly net purchases under the Asset Purchase Programme APP will amount to €40 billion in the second quarter of 2022, €30 billion in the third quarter and €20 billion from October. The bank expects "net purchases to end shortly before it starts raising the key ECB interest rates". [1]
Eurozone CPI Inflation surged 5.1% in January, as this week's preliminary data showed, putting more pressure on the ECB to hike rates, but the bank has so far been patient and not as worried about high prices, as some of its counterparts.
In her press conference, Ms Lagarde noted that "Inflation is likely to remain elevated for longer than previously expected". [2]
What stood out from her remarks though, was the fact that Ms Lagarde did not rule out a rate hike in 2022, when asked about it and the markets' pricing of two rate increases this year.
This was an important shift from December, when the ECB President had said it is "very unlikely that we will raise interest rates in the year 2022". [3]
EUR/USD Reaction
The common currency rallied on Ms Lagarde's comments on Thursday, posting its best day against the greenback in more than a year and heads towards its best week since March 2020. However, we now await US NFPs (13:30 GMT), which have the potential to spur volatility and determine the pair's trajectory.
EUR/USD extended its gains today and eyes its January highs (1.1483), breaking above the descending trend-line form September's highs and the Daily Ichimoku Cloud. This brings the 200Days EMA in the spotlight (at around 1.1570-80), but we remain cautious as the move is overextended, while weekly close above the aforementioned levels would add credibility to the move.
Ms Lagarde's comments may have been interpreted as hawkish by the markets, but the ECB remains far behind the Federal Reserve in the monetary policy normalization and that may continue to support the greenback.
Furthermore, its previous ascending leg towards 1,1500 had led to rejection and retreat to fresh year lows. The pair could face pressure back towards mid-1.1300s, although a strong catalyst would be required for a bigger decline that would breach 1.1320-1.1290.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 04 Feb 2022 https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220203~90fbe94662.en.html | |
| Retrieved 04 Feb 2022 https://www.ecb.europa.eu/press/pressconf/2022/html/ecb.is220203~ca7001dec0.en.html | |
| Retrieved 10 Apr 2026 https://www.ecb.europa.eu/press/pressconf/2021/html/ecb.is211216~9abaace28e.en.html |
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