The Euro has come back under selling pressure over the last 24 hours in response to dovish comments from ECB’s Fabio Panetta yesterday. Panetta pushed back against the idea that the ECB should be discussing the scaling back of monetary stimulus citing the ongoing stickiness in inflation. Panetta said that the eurozone recovery was still in too early a stage for the ECB to be considering removing stimulus.
ECB Talking EUR Down
Panetta’s comments echo those of ECB chief Lagarde who essentially said the same thing last week, along with several other members of the ECB. Given the turning tide in global central bank expectations, with traders now looking to front run central bank tapering, these comments from the ECB have taken some of the steam out of the recent EUR rally.
Upside Risks Growing for EUR
When compared with the UK and the US, the eurozone has suffered much greater on an economic level as a result of a third wave of the virus which broke out in many countries earlier this year, as well as the slower vaccine rollout. However, with the eurozone now starting to gain momentum in its vaccination programme and with the focus starting to shift back to the potential, albeit limited, return of the summer tourist season, traders are looking to time the ECB’s hawkish shift correctly.
Pressure Growing on ECB
EUR has been a on a solid run over the last month or so with the single currency rising almost 5% against the Dollar. Admittedly, this has been largely a function of the weakness in the US Dollar and should the Dollar start to find its feet again, this move could quickly reverse. With EURUSD sitting near the upper end of the last two year’s range, it is no surprise to hear the ECB stepping in with dovish comments, likely in a bid to drive the currency lower. However, if eurozone data continues to improve and vaccination numbers continue to pick up, it is likely going to have a much bigger fight on its hands over the coming months, putting a lot of pressure on the ECB at its next meeting in June.
Technical Views
EURUSD
The rally in EURUSD has seen price breaking out above the bear channel top and above the 1.2176 level resistance. With the MACD bullish, while above here, the focus is on a continued run towards the 1.2343 level next. Should price slip back below the level, the 1.2013 level, and retest of the broken channel, should offer initial support.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.