Euro: new story is old. Forecast as of 24.05.2022


In early 2022, some investors expected the EURUSD a downturn could appear in the second half of the year. The war in Ukraine rejected this idea. Will the euro trend emerge soon? Let’s discuss the Forex perspective and create a trading plan.

Weekly euro fundamental forecast

When one race car starts to accelerate and the other, on the contrary, slows down, the illusion of passing arises. Ultimately, it is not a fact that the trap will really increase speed and be able to overcome the handicap, and the previous one will slow down. But investors don’t need facts, they buy news. The speculation that the ECB could tighten monetary policy faster than expected has sent the EURUSD to its monthly maximum.

Christine Lagarde noted in her blog that the ECB could exit its 8-year experiment with negative rates before the end of the third quarter. This implies an increase in the deposit rate to zero at two of the next three meetings of the Governing Council by 25 basis points each. Earlier, officials spoke only of the onset of the monetary tension, presumably in July. Now its speed is supposed to be increased, which prompts the EURUSD bulls.

According to Lagarde, after September, the ECB is likely to continue to raise borrowing costs to a neutral level that neither stimulates nor limits the eurozone economy. Earlier, officials of the Governing Council suggested that the rate should be in the range of 1% -1.5%. According to Commerzbank, at each of the seven meetings from July to April 2023, the European Central Bank will raise the deposit rate by 25 basis points and bring it to 1.25% by the end of the period. The derivatives market expects the ECB exchange rate to rise by 110 basis points by the end of this year.

Christine Lagarde’s stocky stance has narrowed the yield spread between US and German bonds, which has strengthened the euro and increased its popularity. EURUSD buy bets to 1.1 in the stock market.

Euro call options

Source: Bloomberg.

The accumulation of the main currency pair would hardly have been so impressive if it weren’t for talks about slowing the Fed’s monetary tightening. Atlanta Fed Chairman Raphael Bostic supports the idea of ​​raising federal funds by half a point at each of the next two FOMC meetings in June and July but believes a break should be made in September. Kansas City Fed Chairman Esther George has also been talking about adjustments in the process of tightening monetary policy since August.

The idea of ​​the EURUSD A reversal trend due to a slowdown in the Fed’s monetary tightening and the ECB’s willingness to start raising interest rates in July was discussed in Forex in early 2022. However, the war in Ukraine, the related energy crisis, and fears of stagflation were encouraged. investors to buy the US dollar. According to Deutsche Bank, the financial world has accumulated too much US currency, which has led to its revaluation. Now, investors are selling the greenback.

Weekly EURUSD business plan

The new story is the old one. The idea of ​​the euro trend reversal is good, but the conflict in Ukraine is far from calm, and there are risks of a UK-EU trade war. La EURUSD a rally should not go far. If the price goes below 1,065, one could consider entering short trades.

EURUSD price chart in real-time mode

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