- ECB surprised markets with a 50 bps rate hike.
- This rate hike is the first in 11 years for the ECB.
- The trend might turn down in the 4-hour chart.
Today’s EUR/USD forecast is bearish as investors react to the ECB’s surprise rate hike that might hurt growth in the Eurozone.
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The ECB is trying to control rising inflation while at the same time assisting vulnerable countries like Italy. Investors who had expected a 25bps rate hike yesterday were surprised when the central bank delivered a 50bps rate hike.
This rate hike comes when the Eurozone economy is hurting from the impact of the Ukraine war and is the first in 11 years. Policymakers agreed on a bond purchasing scheme to help debt-ridden countries like Italy at some point in the future.
“Price pressure is spreading across more and more sectors,” ECB President Lagarde said. “We expect inflation to remain undesirably high for some time. We decided on balance that taking a larger step towards exiting from negative interest rates was appropriate.”
The euro went up by about 0.8% to $1.0261, trading at $1.0198 just before the statement but turning lower as Lagarde spoke. After the rate hike, the euro went up as high as $1.0278 before dropping back to $1.0183, ending the day flat. Markets expect a 50 basis point rate hike in September and 127bps over the year.
EUR/USD key events today
EUR/USD investors will see the sentiment change for both the US dollar and the euro when the Commodity Futures Trading Commission releases its weekly commitment of traders report. This report will show the change in net speculative positions, showing whether more investors in the US are long or short the euro.
EUR/USD technical forecast: Eying at parity below 30-SMA
Looking at the 4-hour chart, we see an SMA breakout in progress. The price breaks below the 30-SMA after failing to break above the July 21 resistance at 1.02666. To confirm this breakout, the 4-hour candle will have to close below the 30-SMA.
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The RSI also breaks below 50, showing a change from bullish to bearish momentum. The new downtrend might pause at the July 19 support at 1.01186 before retesting the July 14 lows at 0.99526.
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Saqib Iqbal
