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Dec 16 - 11:55 AM

EUR/USD - COMMENT-ECB, Inflation Outlook Give EUR/USD Longs Some Legs For Now

By Christopher Romano  —  Dec 16 - 10:22 AM

EUR/USD extended its rally on Thursday off the previous session's low with the help of market reaction to the big-three central bank meetings and the ECB inflation outlook, which could fuel more short-term gains before reality of the Fed policy shift eventually firms up the dollar.

EUR/USD got a boost in early New York trading after a surprise rate hike from the Bank of England nL1N2T10MH.
The rally extended after the ECB announce a cut to its stimulus program nS8N2R300H.

Further EUR/USD gains ensued after the ECB lifted its outlook for HICP inflation nL8N2T04M6, in particular increasing 2022 to 3.2% from 1.7%, which also drove euro zone rates higher.

Euribor prices FEIH3 fell toward critical support as investors pulled forward expectations for the initial ECB rate hike.
2-year yield spreads, which EUR/USD is typically correlated with, tightened sharply.

EUR/USD rallied through the trendline off the Nov.
30 daily high and traded 1.13605 on EBS.

Technicals now highlight upside risks.
The 10- and 21-day moving averages lend support, daily RSI is rising and a monthly long-legged doji has formed.

EUR/USD may see further gains, but this may be only a relief rally as the Fed seems to have taken a much more hawkish tone than the ECB nL1N2T02BF and U.S. rate hikes may begin sooner than previously anticipated.

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Refinitiv IFR Research/Market Commentary


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