EUR/USD Soft After Thursday’s Hawkish ECB Shift and US Inflation Surge

  • EURUSD
    (${instrument.percentChange}%)

ECB Hawkish Shift

The European Central Bank produced a hawkish surprise yesterday, as it unveiled a faster tapering path and an earlier end date for its Asset Purchase Program (APP). The APP is now scheduled to amount to €40 billion in April, €30 billion in May and €20 billion in June, concluding in the third quarter. [1]

Despite this expedited plan, Ms Lagarde stated that "we are not in any way accelerating" and stressed the conditionality of the decision on asset purchases, during her press conference. [2]

The central bank did not change interest rates and said that any adjustments will take place "some time" after the conclusion of the Asset Purchase Program, opening the door for a 2020 rate.

The ECB however, may find itself between a rock and a hard place, as the Russia-Ukraine conflict puts upwards pressure on prices, but could also dampen Eurozone's economic activity.

US CPI Inflation Surge

As Ms Lagarde's post-decision press conference was getting underway, the US Bureau of Labor Statistics, released the latest figures for the Consumer Price Index (CPI). Headline CPI climbed 7.9% year-over-year in February, while the Core reading surged 6.4% year-over-year – both the highest since 1982.

Speaking on CNBC after the release, Treasury Secretary Ms Yelen said that "We're likely to see another year in which 12-month inflation numbers remain very uncomfortably high". She also noted that the uncertainty around the situation in Ukraine is "exacerbating" inflation. [3]

Earlier in the week, US President Biden had announced a ban on Imports of Russian oil, liquefied natural gas, and coal, warning that this move will have a "cost" for the US as well. [4]

The surge in Inflation has forced the Federal Reserve to adopt a fast and aggressive tightening plan, concluding its asset purchases this month, while also pointing to interest rates lift-off in during next week's meeting.

EUR/USD Reaction

The pair's kneedjerk reaction to yesterday's ECB decision was higher, but quickly returned to negative territory and ended its two-day recovery, as Ms Lagarde downplayed the faster APP conclusion and the surge in US CPI worked in favor of the greenback.

As today's European session gets underway, the pair remains cautious and breaches its EMA100, having rejected the 38.2% Fibonacci of the "2022 High/Low" decline. This keeps risk for new year lows alive (1.0805), but it may still be early for that, with the first support located at (1.0885).

Despite the rejection of the 38.2% Fibonacci, EUR/USD had managed to close Wednesday above it – even if marginally. A new push towards this level would definitely not be surprising, but we continue to view upward aspirations beyond with caution, since the upside contains multiple roadblocks.

Today's economic calendar does not contain any major releases, but caution is needed as markets continue to monitor the war in Ukraine.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 11 Mar 2022 https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220310~2d19f8ba60.en.html

2

Retrieved 11 Mar 2022 https://www.ecb.europa.eu/press/pressconf/2022/html/ecb.is220310~1bc8c1b1ca.en.html

3

Retrieved 11 Mar 2022 https://www.youtube.com/watch

4

Retrieved 01 Jul 2022 https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/03/08/remarks-by-president-biden-announcing-u-s-ban-on-imports-of-russian-oil-liquefied-natural-gas-and-coal/

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