Euro bulls turn to ECB for more predictions and hopes. Inflation is declining, but the core services and goods are still there.

Euro Currency Key Considerations

The (ECB) expected to Increase by 25bps & Keep option Wide for Further to occur.

Prior to the tourist period, inflation showed evidence of easing down, while core services and goods still an issue.

Possibilities given that the EURUSD Aims Upward to the 1.1000 Psychological zone.

The banks (ECB) rate action has partly fallen below the spotlight as central banks prepare for a hectic week. While the US dollar & US Fed have received plenty of attention. Such may be in significant part due to the ECB’s persistent aggressive language. Which has mainly been factored in and made investors less responsive to statements or releases of data recently.

Euro Investors bet on 25 bps rate hike

Investors anticipate a 25 basis point increase this week. With futures factoring indicating a second rate increase in July prior a halt. Although We don’t anticipate any major shocks The ECB expert’s estimates and remarks following the conference may offer us more insight of direction the Central Banks is headed next. Similar to many Central Banks, the ECB will raise its deposit rate by 25 basis points on Thursday, bringing it to its highest point as of 2008.

THE EUROZONE RECESSION AND THE INFLATION FACTOR

Recently, there has been some good developments regarding inflation in the Euro Region. However, ECB officials were clear that a lot more has to be done. Following topping in October 2022, overall inflation remains steadily declining. The latest statistic of inflation clocked in around 6.1%, its lowest level since Feb 2022. Largely due to the drop in energy costs. Other sectors are nonetheless concerned about inherent pricing stresses, especially food inflation being one specific source of contention.

A decrease in growth is expected to be the main talking issue for the ECB going ahead. Given recent industrial statistics pointing to a downturn as consumer priorities & requirements. While the number of European tourist increases, the ECB will probably pay particular attention to rising inflation in the service industry out of concern that it may lead to more hikes in prices.

At this point, the newly disclosed revised GDP numbers for Q1 show that the Euro Zone technically started a recession. The predictions for Q4 and Q1 have been adjusted downward by 0.1% expansion to a 0.1% decline.  Which might put a strain on the euro going ahead but add more work to the ECB’s table.

Potential scenarios and their effects

Rate Increase with a dovish bias: 

At this point, a 25 bps increase looks sure, with official predictions and general tone likely to be more persuasive. It is unclear how the economic forecasts will alter as a result of the updated Q4 2022 & Q1 2023 GDP numbers. Yet there will undoubtedly be discussion about it. Anything suggesting that inflation would return target levels quicker than anticipated.  Or that there will be new fears about future growth could result in dovish effects and cause the euro to drop.

Rate Increase with Rate Increase Bias: 

The ECB may have adopted a “hardline stance” if it increased rates by 25 basis points and then maintained to express worries about core & service price inflation. While making any serious reference towards the current technical downturn. This, alongside any talk of more increases, may prompt more Euro purchasing over the immediate to medium-term.

Technical Perspective

Technically, the EURUSD has been stuck within the 250-pip band for the past month as it searches seeking direction. The EURUSD gave back the gains it made from the onset of the Asian period to trade close to the 1.0800 mark. Following we saw a pre-FOMC bounce to the higher level.

The duo is still strong minus a daily closure under the 1.0680 support mark. Given that price has breached and posted a daily candle finish over the 100-day MA. Although considering an interim viewpoint with a ‘dovish’ 25bps rise by the ECB. It might bring EURUSD closer into the 1.0700 levels. Prices that are higher remain our preferred med to long term path in the EURUSD.

Key Levels

Support zones

• 1.0800
• 1.0750
• 1.0680

Resistance zones

• 1.0860
• 1.0900
• 1.1000 (psychological marker)