- Since the start of this week's trading, the price of the EUR/USD currency pair has been moving within an upward retracement path.
- Its gains did not exceed the 1.0976 resistance level, before it collapsed to the support 1.0880 in early trading today.
- This was amid assurances from US Federal Reserve officials that it is determined to do more interest rate times.
- The price of the euro / dollar is stable around the level of 1.0920 at the time of writing the analysis.
In general, the euro proved to be the best performer in global foreign currencies before the end of the month, supported by “hawkish” comments from a number of European Central Bank officials that reinforced expectations of higher interest rates in the euro area. Speaking at the European Central Bank's annual summit in Sintra, Portugal, ECB Governor Christine Lagarde said more hikes in interest rates should be expected in order to firmly control regional inflation.
"It is unlikely that in the near future the central bank will be able to announce with complete confidence that peak rates have been reached," Lagarde said.
Thus, the developments are supportive of the Euro given that we live in a forex world that is very sensitive to expectations of rate hikes. The remarks come amid data revealing that the economy has slowed to such an extent that it is likely to contract in June, which would prompt global central banks to become more nervous. However, the ECB's messages from Portugal indicate that it is keen to oversee a "higher for longer" interest rate regime.
“The euro added to its advance in June after hawkish talk from central bankers in the region reinforced the issue of policy divergence,” said Joe Manimbo, senior forex analyst at Convera. The euro's bull run has come in fits and starts, given doubts about the bloc's weaker economic outlook. However, the euro tends to benefit from expectations of the European Central Bank raising interest rates.”
It is noted that ECB Governing Council member Martins Kazak said that economic growth in the eurozone is not yet weak enough to reduce inflation. However, the pound sterling maintains a higher central bank base rate and is likely to take a higher place than the euro by the time the cycle ends.
This suggests that it could continue to benefit from "rollover", whereby investor capital flows to where interest rates are set higher in anticipation of greater returns.
For his part, Mario Centeno, a member of the European Central Bank's Governing Council, warned in an interview with CNBC against excessive monetary tightening. Speaking at the ECB's annual retreat in Sintra, Portugal, where a discussion is taking place about how high borrowing costs the ECB should be charged, Centeno noted that the hikes should end sooner rather than later.
"The ECB as a whole should be in a more balanced position," he also said. "Walking long distances is fundamentally unacceptable as a position."
Technical analysis of the euro against the dollar:
On the near term and according to the performance of the hourly chart, it appears that the EUR/USD is trading within a bearish channel formation. This indicates a significant short-term bearish bias in market sentiment. Therefore, the bears will be looking to extend the current decline towards 1.0898 or below to the support 1.0879. On the other hand, the bulls target potential bounces around 1.0935 or higher at 1.0953.
On the long run, and according to the performance on the daily chart, it appears that the EUR/USD is trading within the formation of an ascending channel. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will target long-term profits around 1.1009 or higher at the resistance at 1.1092. On the other hand, the sellers - bears - will be looking to pounce on profits at around 1.0839 or below at the support at 1.0752.
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