The hawkish position of the ECB will have only a short-term effect on the EURUSD dynamics

28 June 2023 162
The hawkish position of the ECB will have only a short-term effect on the EURUSD dynamics

Yesterday the EURUSD currency pair strongly rebounded up from the support 1.09. Quotes almost reached 1.098, but profit fixing started and pushed them back to 1.096. Today there is a continuation of the pullback, and eventually the EURUSD may return to its initial positions. Current prices do not make it attractive to put the euro on a long rise against the dollar.


Yesterday's EURUSD rally was caused by comments of ECB officials at the annual forum in Sintra, Portugal. Most European regulators expect interest rates to rise at both the July and September meetings, despite signs that the EU economy is weakening. Only 1 of 7 speaking officials expressed doubts about the need to tighten monetary policy in September.


ECB head Christine Lagarde supported her colleagues. She pointed to an excessively resistant inflation, forcing interest rates to be raised higher. Workers are demanding higher wages because of increased prices, and companies, that have had difficulties hiring staff in recent years, are avoiding layoffs. According to Lagarde, the ECB should tighten credit conditions and force both businesses and people to change their behavior.


But even if the ECB raises rates by 0.25% 2 more times, it will still not make them equal to the Fed rates. Moreover, the U.S. regulator is also not in a hurry to finish the cycle of monetary policy tightening. After yesterday's positive statistics on the US economy, Morgan Stanley announced a change in its forecast. Now, the bank expects the Fed to raise interest rates by 25 basis points in July to the level of 5.5%.


A corrective pullback from the 1.5-month highs interrupted the EURUSD growth on Tuesday. As a result, the technical indicators did not have enough time to ease the overbought situation and will complicate any attempts of the "bulls" to continue rising. In such a situation it is more probable that the quotes will approach the level of 1.09 one more time.



The following trading strategy option can be suggested:


Sell EURUSD in the range of 1.095-1.096. Take profit – 1.09. Stop loss – 1.1.

This content is for informational purposes only and is not intended to be investing advice.

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