Home Forex EUR/USD holds on to gains near daily high on weaker USD, hawkish ECB comments

EUR/USD holds on to gains near daily high on weaker USD, hawkish ECB comments

by SuperiorInvest


  • EUR/USD attracts some buyers in response to hawkish comments from ECB board member.
  • The positive risk tone undermines the safe-haven USD and further provides support to the major.
  • Bets that the Fed will keep rates higher for longer favor USD bulls and should limit gains

The EUR/USD pair is adding to the previous day’s slight recovery from near three-month lows, around the 1.0725-1.0720 area, rising for the second day in a row on Wednesday amid mild American dollar (USD) weakness. The prospect of a cease-fire between Israel and Hamas is boosting investor confidence, pulling the safe-haven USD off its highest level since Nov. 14 touched earlier this week. In addition, hawkish comments from European Central Bank (ECB) Governing Council member Isabel Schnabel support the shared currency and provide further support for the currency pair.

However, the markets appear to be convinced ECB could start cutting interest rates by April due to falling US inflation eurozonewhich could prevent bulls from placing aggressive bets euro. Growing consensus that the Federal Reserve will keep interest rates higher for longer is also supporting higher US Treasury yields and should help limit any significant decline in the dollar. This in turn means that it is wise to wait for a strong subsequent buy before confirming that the EUR/USD pair has formed a short-term bottom and position for further gains.

Daily Digest Market Movers: Hawkish ECB comments support euro amid weaker USD

  • ECB board member Isabel Schnabel told the Financial Times that the central bank must be patient with interest rate cuts because inflation could rise again, which in turn offers support to the euro.
  • This follows comments from ECB Governing Council member Boris Vujčič on Tuesday, according to which the central bank should not rush to cut rates because inflation in services and wages are resilient.
  • Data released this Wednesday showed that industrial production in Germany – the eurozone’s top economy – fell 1.6% in December, compared with expectations of -0.4% and a 0.7% drop in November.
  • The prospect of a truce between Israel and Hamas is raising hopes for a de-escalation of the Middle East crisis and boosting risk-on sentiment, undermining the safe-haven US dollar and benefiting the EUR/USD pair.
  • Investors continue to hedge their bets on an early and sharp rate cut by the Federal Reserve following the recent release of robust US macro data and hawkish comments from several FOMC members.
  • In an interview with US TV show 60 Minutes on Sunday, Fed chief Jerome Powell reiterated that the March policy meeting is probably too early to start cutting interest rates.
  • In addition, Philadelphia Fed President Patrick Harker said on Tuesday that recent inflation news is encouraging, although it needs to move sustainably lower to open the door to a rate cut.
  • Harker added that it would be a mistake to cut rates prematurely because wage gains are too high to meet the 2% inflation target and that it is possible that inflation may be more persistent than expected.
  • Minneapolis Fed President Neel Kashkari said we are not done with inflation and most of the disinflationary gains have come on the supply side, but the data looks positive.
  • The yield on the benchmark 10-year US Treasury bond is holding steady above 4.0%, favoring USD bulls, requiring caution before placing new bullish bets around the currency pair.
  • Traders are now looking for near-term opportunities in US trade balance data and Fed officials’ speeches, although the focus remains on next week’s latest US consumer inflation numbers.

Technical Analysis: A move beyond the 100-day SMA is needed for bulls to seize intraday control

From a technical perspective, the break point of the 100-day simple moving average (SMA) support, currently attached to the 1.0775-1.0780 area, could continue to act as an immediate obstacle before the 1.0800 level. Some subsequent buying has the potential to lift the EUR/USD pair to the 200-day SMA near the 1.0835-1.0840 zone. The latter should act as a key pivot point that, if decisively cleared, could spark a short-covering recovery and allow spot prices to regain the 1.0900 round.

On the downside, immediate support is established near the 1.0725-1.0720 region, or a near three-month low, ahead of the 1.0700 mark. There will be some follow-up sales EUR/USD the pair vulnerable to further accelerate the slide towards the 1.0665-1.0660 intermediate support on the way to the 1.0620-1.0615 area and the 1.0600 round figure.

Today’s price in euros

The table below shows today’s percentage change in the Euro (EUR) against the major listed currencies. The euro was strongest against the Swiss franc.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar -0.09% -0.19% -0.10% 0.03% 0.07% -0.07% 0.19%
euros 0.08% -0.09% 0.02% 0.14% 0.17% 0.02% 0.28%
GBP 0.19% 0.09% 0.08% 0.22% 0.25% 0.11% 0.39%
CAD 0.10% 0.00% -0.08% 0.12% 0.17% 0.02% 0.29%
AUD -0.03% -0.13% -0.23% -0.13% 0.04% -0.11% 0.16%
JPY -0.07% -0.17% -0.24% -0.19% -0.03% -0.12% 0.10%
NZD 0.07% -0.03% -0.12% -0.03% 0.10% 0.14% 0.25%
CHF -0.20% -0.30% -0.38% -0.29% -0.13% -0.11% -0.26%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Frequently asked questions of the ECB

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the Eurozone. The ECB sets interest rates and directs monetary policy for the region.
The ECB’s primary mandate is to maintain price stability, which means keeping inflation around 2%. Its primary tool to achieve this goal is raising or lowering interest rates. Relatively high interest rates will usually lead to a stronger euro and vice versa.
The Governing Council of the ECB takes decisions on monetary policy at meetings held eight times a year. Decisions are made by the heads of the national banks of the eurozone and six permanent members, including ECB President Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called quantitative easing. QE is the process by which the ECB prints euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually leads to a weaker euro.
QE is a last resort when simply cutting interest rates is unlikely to achieve the goal of price stability. The ECB used it during the Great Financial Crisis of 2009-11, in 2015 when inflation remained stubbornly low, and also during the covid pandemic.

Quantitative tightening (QT) is the opposite of QE. It is carried out after QE, when the economic recovery is underway and inflation starts to rise. While in QE the European Central Bank (ECB) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds and stops reinvesting the principal due in bonds it already holds. It is usually positive (or bullish) for the euro.

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