- EUR/USD strengthens and rises to new daily highs, extending the previous day’s bounce from the monthly low.
- The ECB announces a surprise meeting to discuss current market conditions.
- Yields remain under pressure, equity futures give back recent gains ahead of key central bank meetings.
- The ECB could try to make up for previous failures to please the hawks, the key being the Fed’s 75 basis point rate hike.
The EUR/USD maintains previous day’s rally around 1.0485as the markets prepare for the surprise monetary policy meeting of the European Central Bank (BCE) to be held early on Wednesday. The pair’s latest gains could also be related to the pullback in US Treasury yields as well as cautious optimism in the market.
According to the latest ECB update, the central bank has called an unscheduled meeting to discuss current market conditions. Amid the paucity of details, euro traders have started to bet on a hard-line outcome, given the ECB’s previous failures to please the hawks. The bloc’s central bank failed to impress the hawks by announcing only a 25 basis point rate hike in July., compared to the 50 basis points expected. The same means that an aggressive move by the ECB is expected, which in turn could boost the EUR/USD pair.
On the other hand, 10-year US Treasury yields ease from highest levels since 2002, down three basis points to 3.45%, amid market anxiety ahead of the Federal Open Market Committee (FOMC). Pullback in yields tests dollar bulls and favors US equity futures, despite the latest pullback in equities.
This is in contrast to market enthusiasm for the Fed’s 75 basis point rate hike during today’s meeting, as well as political pressure on the US central bank that came late on Tuesday.
Next, EUR/USD investors will be attentive to the movements of the ECB and the Federal Reserve to obtain a clear orientation, as both central banks have recently conveyed an aggressive bias, but Powell has an edge over Lagarde. If Federal Reserve Chairman Jerome Powell manages to please the hawks, with or without the widely anticipated 75 basis point rate hike, EUR/USD could return to monthly lows. Before that, ECB President Christine Lagarde will have a chance to position the bulls if she manages to surprise the markets.
In addition to central bank moves, Eurozone industrial production for April and US retail sales for May are also important in forecasting short-term EUR/USD moves.
EUR/USD additional technical levels
Source: Fx Street
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