After surge, the EURUSD has continued to climb.
On Wednesday, the EURUSD gained positive momentum and closed above 1.1050 for the first time in almost a year. The pair has continued to rise, reaching 1.1100 early Thursday. Before entering a stabilization phase. Later in the day, the European Central Bank (ECB) will make its policy choices. And the pair might extend its gain if the ECB’s outlook reveals a widening policy divergence with the US Federal Reserve (Fed).
As expected, the Fed hiked the policy rate by 25 basis points (bps) to a range of 5-5.25% on Wednesday. The Fed removed language in the policy statement indicating that it “anticipates” more rate hikes. FOMC Chairman Jerome Powell did not speak at the post-meeting press conference. Committed to a halt in rate hikes in June and stating that they do not intend to decrease rates this year. Powell’s remarks, however, failed to persuade markets. And the CME Group Fed Watch Tool suggests that the likelihood of another rate hike in June is nearly nil.
The ECB is likely to boost key interest rates by 25 basis points (bps).
The ECB is expected to boost its key interest rates by 25 basis points. Several ECB policymakers stated in April that they could opt for another 50-basis point hike in May. But events since then have caused markets to lean towards a smaller rate increase. The ECB’s Bank Lending Survey released earlier this week. Demonstrated the negative impact of rising interest rates on lending demand.
A rate hike of 50 basis points, which is highly unlikely at the present, would be significant. EURUSD will benefit from a large hawkish surprise. If the ECB opts for a 25-basis point boost but confirms that it will continue to raise rates in the near future, the Euro should outperform the USD.
On the other side, if the ECB does not commit to another rate hike at its next meeting, the Euro could face pressure and the EURUSD could undergo a significant correction.
Market investors will also be watching the weekly Initial Jobless Claims and first-quarter Unit Labor Costs data from the United States. A significant drop in unemployment claims, combined with a robust wage inflation reading, could help the US Dollar regain its footing in the immediate term, limiting EURUSD’s upside.
EURUSD will benefit from a large hawkish surprise. If the ECB opts for a 25-basis point boost but confirms that it will continue to raise rates in the near future, the Euro should outperform the USD.
On the other side, if the ECB does not commit to another rate hike at its next meeting, the Euro could face pressure and the EURUSD could undergo a significant correction.
Market investors will also be watching the weekly Initial Jobless Claims and first-quarter Unit Labor Costs data from the United States.
A significant drop in unemployment claims, combined with a robust wage inflation reading, could help the US Dollar regain its footing in the immediate term, limiting EURUSD’s upside.
EURUSD Technical Analysis
The initial barrier for the EURUSD is at 1.1100 (psychological level, static level. Mid-point of the ascending regression channel).
Once the pair breaks through that level and confirms it as support. It could move on to 1.1160 (the static level from March 2022). And 1.1200 (the psychological level, the static level).
On the downside, 1.1050 (former resistance, static level) serves as an interim support level before 1.1025 (lower-limit of the ascending regression channel. 50-period Simple Moving Average (SMA)) and 1.1000 (100-period SMA; psychological level).
