Euro on the attack, "hawkish" statements of ECB representatives

The euro gained yesterday after data from the German economy. The dynamics of economic growth turned out to be negative, but the result was higher than expected. In turn, inflation fell more sharply than forecasts indicated.

Today, the common currency will probably be sensitive to similar data for the entire euro zone. Publications are scheduled for 11:00. The market consensus indicates a decline in the HICP index. EUR / USD exchange rate rose above the level of 1,06 and this morning we observe a continuation of increases.

Waiting for interest rate cuts

The upward movement in the main currency pair is surprising because lower inflation readings will increase the likelihood that the ECB will not tighten monetary policy through further rate increases. As if further tightening of monetary policy in the euro zone was unimportant for the market. Now investors are focusing on how long this level will be maintained and when the date of the first reduction will fall.

The strong euro can be partly explained by yesterday's "hawkish" statements of representatives of the European institution. Both the president of the Slovak central bank, Peter Kazimir, and the head of the Lithuanian central bank, Gediminas Simkus, defined current expectations for interest rate cuts as premature.

Uptrend on EUR/USD

Today in the morning, the rate of the main currency pair is gaining and reaches the value of 1,0670. The course is the same violates the horizontal resistance of 1,0635 and is at its highest level in a week. The short-term upward trend is still valid. The prices found support in the lower band of the channel, where they have been moving since the beginning of October. In a longer time horizon, the oRGR system is visible (inverted head and shoulders), which suggests a change in trend at least in the medium term. Exactly on October 19, the EUR/USD rate left the falling channel that had been in force since mid-July this year.

Inflation will be persistent

Retail sales in Germany fell more than forecast and amounted to -4,3%. y/y and -0,8 percent m/m. In turn, inflation in France turned out to be lower than a month earlier and at the same time in line with forecasts. Data for the entire euro zone indicated to a decline in HICP inflation from 4,3%. up to 2,9 percent y/y and the base rate to 2,9 percent. with 4,3 percent After 11:00, the euro gives back part of the profits earned in the morning.

Either way, the ECB in the coming weeks is unlikely to discuss quick interest rate cuts despite these inflation surprises. Still, volatile energy and food prices play an important role and will make inflation persistent. If institutional representatives continue to emphasize that the high level of rates will be maintained for a longer period of time, the increase in the main currency pair may not be sustainable.

Source: Łukasz Zembik, OANDA TMS Brokers