- EUR/USD leaves recent highs near 1.0030.
- The ECB’s projections are quite optimistic when it comes to growth.
- The future policy decisions of the ECB continue to depend on the data.
Sellers seem to be regaining control around the European currency and make the EUR/USD cut early earnings and drop back below par after Lagarde’s press conference.
EUR/USD looks offered, Lagarde fails to surprise markets
After rallying to the 1.0030 area, or multi-day highs, EUR/USD was unable to sustain those gains and triggered a corrective move below the parity zone.
The downward movement in the spot came after the press conference of President C. Lagarde, who reiterated that future political decisions will continue to depend on the data and each meeting. Lagarde acknowledged that the labor market remains strong and weak global demand continues to weigh on growth.
He pointed out that the weakness of the euro also contributes to high inflation, as well as supply bottlenecks. Sticking with inflation, Lagarde suggested that food and energy costs could remain higher than anticipated, at a time when a pick-up in inflation expectations warrants monitoring.
Regarding Thursday’s rate hike, Lagarde declined to comment on whether the next rate hike will also be 75 basis points, adding that it is not the norm. He also suggested that the neutral rate is higher.
Faced with the recent depreciation of the euro, Lagarde reiterated that the central bank is not targeting the exchange rate.
What to keep in mind around the euro
EUR/USD is now sinking well below parity after C.Lagarde missed bulls’ expectations in Thursday’s ECB event.
So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation fears and the divergence between the Fed and the ECB.
Among the negative aspects for the single currency are the growing speculations about a possible recession in the region, which seem to be underpinned by the decline in sentiment indicators and the incipient slowdown in some fundamental indicators.
Technical levels
For now, the pair is down 0.65% at 0.9936 and a drop below 0.9863 (Sep 6 low) would target 0.9859 (Dec 2002 low) on the way to 0.9685 (Oct 2002 low). On the other hand, the next resistance lines up at 1.0090 (weekly high Aug 26) before 1.0161 (55-day SMA) then 1.0202 (high Aug 17).
Source: Fx Street
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