- The euro under pressure after the ECB meeting and despite the rise in yields.
- US dollar gains momentum as market sentiment deteriorates.
- EUR/USD falls to test the 20-day simple moving average.
The EUR/USD continued to fall during the American session and bottomed out at 1.0643 hitting a one-week low amid a stronger US dollar on risk aversion triggered by rising yields.
EUR cannot benefit from ECB change of course
On Thursday, the euro hit a high against the US dollar of 1.0773, the highest level in a week, following the European Central Bank’s announcement. The central bank, as expected, kept interest rates unchanged and said it intends to raise them at the July meeting by 25 basis points.
“We take the ECB’s implied short-term profile, and now expect a 25bp hike in July and a 50bp hike in September. Beyond that, we expect a further 50bp hike in October, before “The ECB slows the pace to 25 basis point hikes in December, February and March. This would take the deposit rate to 1.50%, which we believe is the ECB’s estimate of its neutral rate,” TD Securities analysts explained.
During Lagarde’s press conference, the euro lost momentum, even as German bond yields hit new multi-year highs at 1.46%. EUR/CHF moved from 1.0500 to 1.0370 and EUR/GBP fell below 0.8500.
In the US, initial jobless claims rose more than expected to the highest level in 20 weeks. The CPI for May will be released on Friday and the FOMC meeting will be held next week.
Testing the 20-day SMA
EUR/USD decline has found support around the 1.0635 area so far. It is a relevant zone that also contains the 20-day simple moving average. A daily close below should weaken the Euro outlook, exposing the next support level at 1.0585 followed by 1.0520.
If the pair sustains above 1.0640 it is likely to continue trading in the 1.0640/1.0750 range. A break above the upper bound should clear the way for an extension of the rally.
Technical levels
Source: Fx Street
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