ECB Up Next

Following on from the Fed yesterday, focus today turns to the ECB. In line with previous signalling and recent commentary, the bank is widely expected to press ahead with a further .25% rate hike. As such, the bigger focus will be on the guidance the bank issues and how it signals the likelihood of further tightening. Given how hawkish recent commentary has been, the bank is likely in a tricky spot where it has set the bar quite high in terms of achieving a bullish EUR reaction.

EUR long positions have certainly been reduced from where they were at a few months ago. However, with the market already pricing in at least one further hike after this meeting, it would likely take a hawkish surprise from the bank to help drive EUR meaningfully higher, especially against the hawkish guidance we saw from the Fed yesterday.

Downside EUR Risks

While the meeting is likely to be a hawkish one, it might fall short of providing a catalyst for fresh EUR buying, raising risks of a drop lower in the currency. Indeed, with inflation cooling steadily and the growth outlook looking precarious, the bank might not sound as hawkish as some expect which would certainly pave the way for near-term selling in EUR if seen.

Technical Views

EURUSD

The reversal lower in EURUSD has seen the pair trading down through the bull channel lows and the 1.0785 level. However, price has since recovered that level and while above there, the focus is on a fresh push higher towards 1.1126 next. To the downside, should we slip lower again, 1.0515 is the next support to watch.