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Euro Surges As Markets Digest More Hawkish ECB

FOREX
  • The single currency sprung to life on Thursday as markets interpreted the ECB’s press conference as a hawkish pivot, bringing forward bets that the ECB could tighten policy much sooner than previously anticipated.
  • With risks to the inflation outlook, particularly in the near term, tilted to the upside compared to December’s meeting, ECB President Lagarde failed to rule out a rate hike this year which saw EURUSD spike to three-week highs, back above 1.14.
  • Entering the press conference, EURUSD was a little softer around 1.1285. However, the weakness was short-lived and EURUSD rose quickly above the day’s high of 1.1308 and yesterday’s peak of 1.1330.
  • The momentum continued with the pair blowing through noted resistance levels including the 50-day exponential moving average and the bear channel top drawn from the June 1, 2021 high. The rally narrows the gap with cluster resistance just ahead of the 1.1500 mark that may prove a short-term obstacle for short-term Euro bulls.
  • EUR strength was broad based with EUR crosses all benefitting and especially EURJPY marching 1.56% higher, despite overall weakness in global equity indices.
  • The other major central bank decision was a 25bp hike from the Bank of England. With 4 dissenting voters calling for a bolder 50bp hike, GBP immediately strengthened which prompted EURGBP to test multi-year support below 0.8300. With the strategy to tighten rapidly now in the hope of ensuring that the rate peak is lower, sterling gains were fairly short lived, retracing the moves ahead of the ECB.
  • Amid the renewed optimism for the Euro, EURGBP had a very noteworthy 1.5% turnaround, likely to close the day back above 0.84.
  • Dragged down by the impressive Euro rally, the dollar index extends on its recent downswing, with total losses for the index exceeding 2% on the week, retreating in every session. This comes ahead of January US non-farm payrolls data which headlines the Friday data schedule.
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