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EUR/USD - Are the Interest Rate Hikes Enough?
06.06.2022

The price movement of the EUR/USD pair is currently correcting downwards but remains slightly higher than the weekly market open. The price originally increased in value forming two higher waves within six hours, however, the asset is witnessing a strong correction with the current price declining in favor of the US Dollar.

Over the past three hours, the market has been monitoring the price movement of the downward correction. The question remains whether the price will form a lower low and gain momentum in a downward trend. When adding moving averages and a volume weighted average price to the charts, we can see the price remains relatively close to indicators signaling the undecided position of the market. However, traders should also note that a low volatility period can be followed by strong trade positions and trends.

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When looking at the price movement over the past two weeks on larger time frames, we can see that the price movement has been in favor of the Euro. The Euro seems to have been supported by the rhetorical comments of the Board of Governors of the ECB (European Central Bank). For example, its President, Ms. Lagarde, advised that the Central Bank is likely to start raising interest rates in July. As a result, the interest rate which is currently negative, could increase to a neutral or even positive zone ​​​​by the end of September.

According to The Bank of America Corp. estimates, the ECB may correct interest rates by half a point in July and September, potentially followed by another quarter of a point in October and December. Economists predict that the cycle of tightening monetary policy in this direction could be completed by 2023.

Statements by European officials have increased investors' interest in the single currency, as they hope that the regulator may follow the example of the US Federal Reserve in its readiness to take decisive steps to combat inflation, which, in turn, will increase demand for risky assets. The market will also be waiting for Thursday’s press conference where the ECB will be asked multiple questions about these hikes. As the picture becomes clearer for investors, we should be able to see more volume and volatility.

The situation in Ukraine remains a negative factor for the Euro for geographical reasons and the dependency on Russian energy and raw material. Due to the restructuring of logistics for the delivery of oil and gas, the EU is suffering huge losses. This has led to an increase in consumer prices by 8.1%, and the market feels that this figure is likely to increase again. This situation does have the ability to continue to harm the Euro.

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No major economic announcements are due to be made today, nor tomorrow. The price movement is strongly being influenced by short term technical factors. Traders may start to position themselves for significant economic releases later this week including the ECB’s monetary statement, conference call and the US CPI figure.

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