EUR/USD: Steady as Powell and Lagarde’s Remarks Drive Euro Evaluation

Highlights

• Monetary policies: Powell and Lagarde indicate rate hikes, leaving possibility of July increase.
• ECB stance: Lagarde acknowledges inflation moderation but expects more rate increases.
• U.S. outlook: Powell highlights high inflation and tight labor market, expecting more rate hikes.

Overview

The EUR/USD is trading flat on Thursday as market participants evaluated the impact of hawkish monetary policies in the United States and the Euro Zone.

Powell and Lagarde Discuss Rate Hikes

Federal Reserve Chair Jerome Powell, speaking alongside European Central Bank (ECB) President Christine Lagarde on Wednesday, indicated that two rate hikes were likely this year. This opens the window for a possible July rate hike.

Earlier in the week, ECB President Lagarde acknowledged signs of moderation in core inflation in the Euro Zone.  However, she also stated that it was too early to determine if a peak had been reached. Lagarde’s comments align with market expectations for more interest rate increases from the ECB in the near future, despite a recent fall in inflation. The ECB aims to raise rates to levels that will sufficiently restrict inflation and maintain them as necessary.

Inflation Concerns Drive Fed Rate Hike Expectations

While U.S. inflation remains above the Federal Reserve’s 2% target and the labor market remains tight, Chair Jerome Powell stated that most policymakers expect to raise interest rates at least twice more by the end of the year. However, Powell did not provide specific timing for these rate hikes. He emphasized the impact of banking stresses on credit conditions and acknowledged the need to bring inflation down to the Fed’s goal.

ECB Anticipates Continued Rate Hikes

Although some ECB policymakers anticipate easing inflation, they do not expect it to be clear enough to pause the current streak of interest rate hikes. Conversations with seven rate-setters at the ECB’s annual forum indicated that they anticipate raising borrowing costs at both the July and September meetings. This, despite indications of economic weakness in the Euro Zone.

German States, Spain:  Mixed Inflation Data

In other news, inflation data from German states and Spain added to the mix of factors influencing the Euro. Consumer prices in Germany’s North Rhine Westphalia rose 6.2% year-on-year in June, up from 5.7% in May. Spain, on the other hand, saw its 12-month inflation fall to 1.9%, the lowest since March 2021 but still above economists’ expectations of 1.7%.

Outlook:  Focus on Hawkish Fed, ECB Monetary Policies

In summary, the Euro traded flat against the U.S. Dollar as traders assessed the implications of hawkish monetary policies. Powell’s remarks on rate hikes in the U.S. and Lagarde’s acknowledgment of core inflation moderation influenced market sentiment. The Euro Zone and the U.S. are on similar paths of tightening, with expectations of further rate increases in both regions.

Technical Analysis

The EURUSD is currently displaying  neutral sentiment as it trades near the previous 4-hour close. The price is in proximity to the 200-4H moving average, suggesting potential support. Meanwhile, traders are still facing resistance near the 50-4H moving average. The 14-4H RSI reading of 50.84 reflects a balanced market sentiment.

Major support is found between 1.0849 and 1.0808, with major resistance ranging from 1.1006 to 1.1074. Overall, the market lacks a clear directional bias at the moment, and traders should closely monitor price movements for potential breakouts or reversals that could indicate a shift towards a more bullish or bearish outlook.

The price action suggests that traders are waiting for a catalyst to create momentum.