EUR/USD has certainly woken up and went up, far up, perhaps too far for the European Central Bank. The pair initially broke above the 2017 peak of 1.2090 and then continued from strength to strength. It first stopped at 1.22, then at 1.23 and the most recent high is 1.2323.
A higher exchange rate makes European exports less attractive for foreign buyers. Worse off for the ECB, it makes the prices of imported goods cheaper, thus depressing inflationary pressures. The ever-elusive target of 2% may slip away despite the huge efforts of the Bank.
The recent rise has triggered several comments from members of the ECB’s Governing Council:
- ECB Vice President Vitor Constancio said that he is concerned about the sudden movements in the euro. He added that they do not reflect the fundamentals.
- Ewald Nowotny, the outspoken Austrian central banker, said that the “euro exchange rate must be observed”. To make things clearer, he said that the recent rise in the euro is “not helpful”.
- French ECB member Villeroy said that the rise of the euro is a “source of uncertainty” and added that inflation has not reached a self-sustained level.
This seems like a coordinated move to talk down the euro.
EUR/USD did move lower. Part of it is a natural correction after the big move. The US dollar found some buyers at lower levels.
However, a closer observation of the chart shows that the trend is still intact. EUR/USD is posting higher highs: 1.2323 is clearly higher than 1.23. Perhaps more importantly, it is also enjoying higher lows.
The trough after hitting 1.23 was 1.2195. The low point after touching 1.2323 was 1.2201. This may be only 7 pips, but it shows that the trend is alive.
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