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The European Central Bank (ECB) announced earlier today that it has raised key interest rates by 50bp, in line with market expectations. Since this is a slower rate hike than the previous one, one could say that the ECB is leading.
If yes, it’s a hawkish focus because (almost) everything the ECB said today was hawkish for the centre.
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More precisely, the ECB has given very bad guidance today. A substantial upward revision in the inflation outlook suggests the central bank will raise interest rates by another 50bp in February 2023.
Also, the staff’s macroeconomic projections suggest that the economy will rebound in the coming years after a downturn in 2023.
A hawkish stance by the ECB
Market participants expected a 50bp rate hike from the ECB. However, they don’t expect serious hawks with rate hikes.
First, the ECB sees the coming recession as relatively short-lived and shallow. Second, staff projections show large upward revisions in inflation, including the core one. Finally, 2025 inflation is above the ECB target, with staff seeing a key one of 2.4%.
Also, the risks are tilted to the upside.
EUR/USD above 1.07
Naturally, the euro jumped on the ECB’s statement and press conference. The EUR/USDFor example, it traded above 1.07, a stunning reversal considering it traded below 0.96 a few months ago.
But EUR/USD wasn’t the only one to advance today. EUR/JPY 1%, EUR/GBP and EUR/AUD rose close to 2%. So, the Euro is rallying across the dashboard.
Coming back to EUR/USD, the technical picture looks positive. The pair bottomed in October along with the U.S. stock market, then rallied.
Recently, it has formed a rising wedge formation. Usually, rising wedges are rough patterns, but sometimes they work continuously.
Whenever they act as continuation patterns, it means that the market has formed a running triangle – which is further reversed. Therefore, one should not be surprised to see EUR/USD showing resistance at 1.08 soon.
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