Published on 26.04.2022 14:20

The Euro fell back under the psychological $1.0700 level during the Asian trading session and has continued to fall throughout the European trading session and continues to make bearish headway towards its 2020 lows of around $1.0630

The European currency also failed to take advantage of the hawkish comments from ECB policymaker Martin Kazaks with regards to a rise in interest rates for the Eurozone as the year unfolds

Kazaks reiterated his preference for the bank to begin rate hikes in July and called expectations for two or three hikes this year “quite reasonable”. As analysts have noted, the recent hawkish shift in policy guidance from the ECB towards rate hikes in Q3 has failed to lift the euro against the US dollar because the recent hawkish shift from the Fed has been larger.

The Fed is now expected to lift interest rates in 50 bps intervals at its next few meetings and is likely to take interest rates back to neutral status of around 2.5% by the end of the year, with the risk of much higher rates to follow in 2023 in they can’t reign in the inflation figures

 This divergence, as well as higher stagflation risks in the Eurozone versus US as a result of the Russo-Ukraine war, explains why EUR/USD has had such a tough time holding onto rallies in recent weeks.

If the pair does break below its 2020 lows in the coming days, as is very possible, the door would be open to a drop to the next key area of support in the form of the 2017 lows at 1.0340, which would mark a decline of more than 3.0% from current levels.

Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of the durable goods figures from the US which is a key indicator of consumer spending and may help the US Federal reserve decide on the timing of the next rate hike.


FAQ