EUR/USD keeps the bid tone near 1.1950 on Lagarde’s presser
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EUR/USD keeps the bid tone near 1.1950 on Lagarde’s presser

  • EUR/USD recedes from earlier tops around 1.1970.
  • The ECB left unchanged its interest rate, matching expectations.
  • Lagarde noted the pick-up in inflation is seen as transitory.

The single currency remains well bid on Thursday, with EUR/USD navigating the mid-1.1900s as Lagarde’s press conference is under way.

EUR/USD trades in 4-day highs

EUR/USD posts gains for the third session in a row following a cautious stance from the European Central Bank at its event on Thursday.

At her press conference, Christine Lagarde said the growth risks now look more balanced. She also noted that uncertainty still remains and that bouts of inflation strength as deemed as temporary. Regarding inflation, the overall outlook stays unchanged from the December projections.

Lagarde suggested that the bank will continue to monitor developments in the exchange rate.

The ECB revised its projections and now sees 2021 GDP expanding 4.0% this year and 4.1% in 2022. Lagarde noted that the economy is expected to contract in the January-march period. Forecasts for inflation see the HICP rising 1.5% in 2021 and 1.2% in the next year, while the long-term inflation expectations remain subdued.

It is worth recalling that the ECB left unchanged its monetary policy conditions, as broadly expected. The central bank also said it will accelerate purchases under the PEPP in the next quarter.

What to look for around EUR

EUR/USD recorded new 2021 lows in the vicinity of 1.1830 region on Tuesday, although it managed to stage a moderate rebound afterwards to 1.19 and well beyond. The solid rebound in the greenback as of late put the previous constructive stance in the euro under heavy pressure, as market participants continue to adjust to higher US yields and the outperformance of the US economy. A move below the critical 200-day SMA (around 1.1815) should shift the pair’s outlook to bearish in the near-term. In the meantime, price action around EUR/USD is expected to exclusively gyrate around the dollar’s dynamics, developments from yields on both sides of the ocean, extra fiscal stimulus in the US and the global economic recovery.

Key events in Euroland this week: ECB interest rate decision/Press Conference/Economic Projections (Thursday) – EMU’s Industrial Production (Friday).

Eminent issues on the back boiler: EUR appreciation could trigger ECB verbal intervention, always amidst the current (and future) context of subdued inflation. Potential political effervescence around the EU Recovery Fund. Huge long positions in the speculative community.

EUR/USD levels to watch

At the moment, the index is gaining 0.17% at 1.1949 and a break above 1.1976 (50% Fibo of the November-January rally) would target 1.2033 (100-say SMA) en route to 1.2113 (monthly high Mar.3). On the other hand, immediate contention emerges at 1.1835 (2021 low Mar.9) seconded by 1.1824 (200-day SMA) and finally 1.1762 (78.6% Fibo of the November-January rally).

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