Forex chart patterns: EUR/USD regains 1.025 as ECB’s hawkish hike looms
09:55, 20 July 2022
The US dollar shows no signs of recovery following a three-day losing streak, with EUR/USD breaking above the 1.02 barrier yesterday and surging to 1.025 as of this writing, boosted by rising speculation of a half-percentage point hike at tomorrow’s ECB meeting.
Sources familiar with the matter told Reuters yesterday that the ECB is expected to raise borrowing costs in the Eurozone by 50 basis points, but will also unveil a tool to limit sovereign spreads in order to counter the effect of higher rates on heavily indebted countries.
The case for a hawkish half-point hike gathered traction after Eurozone inflation touched an all-time high of 8.6% in June and EUR/USD hit parity last week. Furthermore, central bank surprises this year have been generally hawkish, raising the bar for the ECB, which is the only major central bank (except the Bank of Japan) that has yet to begin hiking interest rates.
Meanwhile, political tensions in Italy have subsided as Prime Minister Mario Draghi, who resigned last week, has decided to remain in office pending the formation of a new broad parliamentary coalition. This helps to stabilise the euro by reducing the possibility of populist backlash in Italy.
EUR/USD chart analysis: momentum gains steam ahead of the ECB
EUR/USD analysis: eyes on 1.035 with 50bps hike? – Photo: Capital.com, Source: TradingviewThe hammer candlestick formation that occurred on the EUR/USD daily chart last Thursday (July 14) prompted a short-term trend reversal for the pair, which is currently enjoying in its fourth consecutive session in the green.
A positive close today would be the longest winning run for EUR/USD since the beginning of February. The 14-day RSI, after rebounding from extreme oversold levels, is still trading below the 50 mark, meaning the bulls are not yet in full control.
The MACD instead produced the bullish signal, with the MACD line crossing from below to above the signal line.
The underlying trend is still bearish, although a test of 1.035 (May and June support) might be on the cards if the ECB announces a half percentage point hike tomorrow. The breakout of the bearish trendline above 1.046 is more challenging, instead, at least in the short term. On the downside, parity levels might be retested if the ECB fails to deliver a hawkish message tomorrow.
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Forex market today – July 20, 2022
Macrowise, UK annual inflation rose to 9.4% in June 2022, the highest rate since 1982 and slightly higher than market predictions of 9. 3%, owing mostly to soaring energy and food prices. The cable (GBP/USD) rose to 1.203 (up by 0.2% on the day) on mounting expectations of hawkish reactions from the Bank of England.
On the geopolitical front, Russian President Vladimir Putin said Gazprom plans to fulfill its duties but warned that if the turbine return is delayed, Nord Stream volume would decline and attempts to cap Russian oil prices will result in price hikes.
In the afternoon, traders will look at July consumer confidence data for the Eurozone, which recorded the lowest figure (-23.6) since April 2020, as well as the release of the inflation rate in Canada, with the market forecasting increase to 8.4% year on year from 7.7%.
The focus will next shift to tomorrow's meetings of the Bank of Japan and the European Central Bank.
All major currencies were little changed on the day, with the New Zealand dollar (NZD/USD) outperforming with a modest 0.5% gain versus the dollar.
Currency strength matrix – July 20, 2022
Currency strength matrix - July 20, 2022 (11:00 GMT) – Photo: Capital.comPerformance of forex pairs as of July 20, 2022
Performance of forex pairs as of July 20, 2022 (11:00 GMT) – Photo: Capital.comMarkets in this article
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