EUR/USD climbs to 1.0700 of the ECB policy decision

EUR/USD climbs to 1.0700 of the ECB policy decision

The EUR/USD has pared some of Monday’s losses and is now testing the 50-day moving average to the upside on Tuesday during the North American session. At 1.0709, the EUR/USD pair exchanges hands on top of the previously-mentioned DMA at the time of writing.

The EUR/USD pair has remained flat in the week, though losing 0.09%. the prevalent market sentiment is currently positive, though the EUR/USD maintains a pattern of mixed performance ahead of the European Central Bank’s policy decision and US inflation numbers.

US equities are trading with gains as Wall Street’s closing looms, reflecting Investors’ positive mood. Market players’ worries about elevated prices and the Federal Reserve’s tightening conditions eased. Therefore, US Treasury yields fell, underpinning the greenback, a tailwind for the EUR/USD. The US 10-year Treasury yield pares Monday’s gains and loses six basis points, down at 2.981%. In the meantime, the US Dollar Index, a measure of the buck’s value, grinds lower some 0.10%, sitting at 102.302.

Data-wise, the Eurozone economic docket featured the S&P Global Construction PMI for the fourth largest economies in the block, alongside the Euro area figures. The readings were mixed, though they failed to trigger a reaction in the pair. Later in the week, the European Central Bank (ECB) monetary policy lurks.

The ECB President Christine Lagarde and most policymakers are expected to hold rates unchanged, though market players await forward guidance regarding the APP and signals that the bank would shift policy to normal.

The 10-year bond yield spreads across the Euro area began to widen. Greece and Italy spread have hit the 3.87% and 3.42% threshold, respectively. The US economic docket featured the Trade Balance, which helped ease the deficit, narrowing the most in almost nine and half years in April, as exports bounced to a record high of $252.6 billion vs. March’s $244.1 billion.

Ahead of the week, Initial Jobless Claims, inflation figures, and Consumer confidence would give GBP/USD traders the current status of the US economy.

Technically; the EUR/USD pair is in a downward bias, despite the major’s correcting from YTD lows around 1.0300s to 1.0780s. Also, EUR/USD traders pushed the pair near the 50-day moving average (DMA) at 1.0705, though a daily close below would exacerbate a move towards the June 1 swing low at 1.0627, as the first target.

The EUR/USD first support would be 1.0700. Break below would expose the June 1 low at 1.0627, followed by the May 20 daily low at 1.0532, and the May 19 low at 1.0460. Market expectations still bet on the European Central Bank to hike interest rates by 150 basis points this year including 50 bps moves in July and September.

Last week’s eurozone inflation data, which came in far higher than expected at 8.1%, was confirmation that 100 bps could be the minimum. Barclays said that it now expects the ECB to hike in 25 bps increments at each meeting from July to December. It expects one more hike after that in the first quarter of next year, which would take the ECB’s depo rate to 0.75%.

The ECB last hiked interest rates in 2011 and its depo rate is currently at -0.50%. Money markets currently price in over 130 bps hikes by year-end, with a 50 bps move at a single meeting fully priced in by October.

The European Central Bank looks all but certain to announce on Thursday that its years of bond-buying stimulus are over and that high inflation means interest rate rises are imminent. Markets want more clarity on what comes next, and whether policy tightening might be accelerated to get ahead of soaring prices.

This could be the ‘whatever it takes’ moment for ECB President Christine Lagarde as there are some doubts as to whether the ECB really could hike aggressively. The ECB will almost certainly announce that its bond purchases will end mid-year, paving the way for a rate increase in July that would be its first hike since 2011.

Lagarde has said the -0.50% deposit rate should be at zero or “slightly above” by end-September, implying a rise of at least 50 basis points from current levels.