According to the short-term outlook, EURUSD is poised to test 1.1400, supported by the single currency’s strength on the back of the European Central Bank’s (ECB) hawkish posture. However, this effect is likely to be temporary. Eventually, the pair could retreat to the 1.1330–1.1300 range, weighed down by a resilient dollar and persistent geopolitical risks.
Yesterday’s ECB meeting also shifted EURUSD’s medium-term trajectory.
As widely expected, the regulator kept its deposit rate at 2.25%. But it was Christine Lagarde’s commentary during the press conference that truly moved the market.
Hawkish pause. In her speech, the ECB President highlighted that inflation risks remain acute, fueled by a new wave of tensions in the Middle East and another surge in energy prices. Brent crude and natural gas have once again put the European economy under significant pressure.
September hike. Lagarde noted that several Council members voted for a rate increase at yesterday’s meeting. Although she did not confirm these intentions, market participants interpreted her words as a direct signal of a 25-basis-point hike in September. The likelihood of this scenario is now estimated at nearly 95%.
Rising expectations of a hawkish ECB stance are narrowing the yield gap between the euro and the dollar, preventing the former from a steep decline in the short run.
Nevertheless, this local support does not change the broader trend of a stronger greenback. The US-Iran conflict continues to boost demand for the American currency as a key safe-haven asset.
What to watch next? Upcoming meetings of the Federal Reserve (Fed) and the Bank of England (BoE). The US regulator is projected to strike a hawkish tone amid renewed inflation worries. This move is likely to cap the pair’s upside.
The overall recommendation is to buy EURUSD. Profits should be taken at 1.1400. Stop Loss could be set at 1.1360.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
