Christine Lagarde Gives a Boost to EUR/USD

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Over the weekend, ECB President Christine Lagarde blogged about monetary policy in the Eurozone. The usually dovish-minded Lagarde summed up her opinion noting that as the inflation outlook has shifted particularly upward, she expects net purchases under the Asset Purchase Plan to end very early in the third quarter (who will be announced at the June ECB meeting?) . She added that this would allow the ECB to raise rates at the July meeting and likely to come out with negative interest rates before the end of the third quarter (September meeting?). After that, the ECB would bring interest rates in line with a neutral rate based on the medium-term outlook for inflation. In addition to Christine Lagarde’s comments, the German Ifo Business Climate for May released today was better than expected at 93, up from 91.4 expected and 91.9 in April. The current conditional component was much stronger at 99.5 versus 97.3 previously while the expected component was similar at 86.9 versus 86.8 in April.

On a daily basis, EUR / USD has been trading lower in an ordered down-slope channel since May 2021, when the pair reached a high of 1.2262. However, on April 22ndndEUR / USD broke aggressively below the channel’s downtrend, near 1.0753, and fell within 9-pips of the 2017 lows at 1.0340 on May 13th.th. Note that the RSI diverged with price as EUR / USD tested the 2017 lows, a sign that the pair may have been ready to move higher. Since then, the pair has rebounded and is currently retesting the downtrend of the long-term channel.

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Source: Tradingview, Stone X

In a 240-minute time frame, EUR / USD broke above the 38.2% Fibonacci retracement of the March 31 highs.st to the May 13 lowth at 1.0668 and tests horizontal resistance, the bottom, downward sloping trend of the long-term channel, and the psychological round number resistance at 1.0700. Above, price may run to a rally of resistance between April 14thth lows at 1.0757 and the 50% rebound from the aforementioned time frame at 1.0766. The next resistance level is the 50 Day Moving Average near 1.0772. However, be aware of the shorter time frame that the RSI is in overbought territory, an indicative price may be ready to retreat. Horizontal support sits below at 1.0683 and 1.0506. Below that, price may drop until May 13thth lows of 1.0349.

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Source: Tradingview, Stone X

With Christine Lagarde laying the groundwork for upcoming ECB exchange rates, EUR / USD has continued its recent bid higher. Throw in the better-than-expected German Ifo, and EUR / USD collected more than 100 pipes a day. Can it last? It will do if the pair can break through 1.0700 and the RSI in the 240-minute time frame can relax into neutral territory!

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