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Mar 21 - 01:55 PM

EUR/USD - COMMENT-Out Of Sync ECB, Fed Should Limit EUR/USD Gains

By Christopher Romano  —  Mar 21 - 09:50 AM

EUR/USD's latest rally stalled short of the 50% Fibo of the 1.1495-1.0806 decline last Thursday and it was mired below 1.1050 on Monday as the dollar built on its yield advantage stemming from diverging ECB-Fed policy paths, which should underpin the U.S. currency further.

ECB President Christine Lagarde said ECB policies will not be in sync with the Fed nIfpcfQ2nH, and followed recent rhetoric indicating flexibility on policy adjustments.

In contrast, Atlanta Fed President Raphael Bostic said getting high rates of inflation under control was his top concern and that he has penciled in six hikes for 2022 and two more in 2023, though he cautioned that Russia-Ukraine crisis introduced an element of uncertainty nL2N2VO0MA.

Interest rate markets reinforce the diverging policy paths.
Eurodollar prices have fallen sharply and now peak just above 2.80% near mid-2023 EDM3.
Investors expect ECB hikes but at a more measured pace.
Slowly falling Euribor prices show a peak in rates near 1.0% in Q3 2025 FEIU5.

2-year spreads trade at their widest in 2 1/2-years.

Technicals highlight downside risks.
A rising wedge is forming on daily charts and monthly RSI is falling.

The risk of a return to the 1.0800 area remains high.

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Refinitiv IFR Research/Market Commentary


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