The trading of the last week of June was harsh for the price of the euro/dollar pair, as it fell to the 1.0365 support level and settled around the 1.0435 level at the beginning of this important week’s trading. This included announcing the contents of the minutes of the last meeting of the US Federal Reserve, ending with the announcement of US job numbers. The price of the euro was not very happy with the shift of the European Central Bank’s policy towards tightening. I mentioned before that the US Federal Reserve is still racing and strongly in the path of raising interest rates throughout 2022.
The recent Forum on Central Banking in Sintra, Portugal, provided insight into the thinking of the European Central Bank (ECB), Bank of England (BoE) and Federal Reserve (Fed) while providing clues on what will be important to them. The heads of the European Central Bank, the Bank of England and the Federal Reserve were joined on the last day of the ECB's annual conference on central banks by BIS Managing Director Augustus Carstens and Bloomberg's Francine Laqua for a discussion session last Wednesday.
Both were questioned about everything from expectations of economic growth and inflation to interest rates and the merits of current market expectations of the path of borrowing costs over the coming months as part of this policy panel. The biggest benefit to the markets was that neither European Central Bank President Christine Lagarde nor BoE Governor Andrew Bailey came close to endorsing current market expectations like Fed Chairman Jerome Powell.
For her part, ECB Governor Lagarde said, “Our reaction function is what matters, and as long as that is understood, the fact that we are on this path of normalization, that we will be gradual but optional, and the fact that we have made very clear what could happen in July. What is likely to happen in September? And the way we're going, yes I think the markets have a full understanding and appreciation for what we're doing.”
She added, "We need to look at how clear the uncertainty is looming, and I think in that regard what's happening on the energy front, what's happening on the war front unfortunately, what's happening in terms of wage negotiations and how inflation expectations are." Continuing to remain firmly established just as it has re-established are some of the elements that we will consider very carefully at the job we have to do.
President Lagarde chose no bones with European interest rate expectations while saying nothing that would encourage financial markets to go further than they already did when he bet recently that the deposit rate in Europe is likely to rise from -0.50% to 1%. before the end of the year. She also reminded on two occasions, in what may be pertinent remarks, of the "option" that the ECB is seeking on the timing and size of any changes in interest rates after the 0.25% rise in July which was already announced as part of a policy decision June.
However, there were no details, and few comments on the widely awaited and eagerly anticipated plans for a new instrument aimed at staving off instability in southern European government bond markets, as European Central Bank interest rates rose for the first time since the sovereign debt crisis in the eurozone.
EUR/USD forecast today
The contrast between the future of policy tightening for both the European Central Bank and the Federal Reserve continues to be a strong reason for the EUR/USD pair's decline throughout 2022. The general trend of the Euro-dollar is bearish, and stability will remain below the 1.0500 support, which will continue to support the bears’ continuous and stronger control of the trend for the time being. The most important support levels for the trend will be 1.0410, 1.0380 and 1.0290, respectively, which are sufficient to push the technical indicators towards oversold levels.
On the upside, any attempts to rebound will not be strong, and if they occur, selling will occur again. The closest resistance levels for the euro are $1.0485, 1.0550 and 1.0630, respectively.
