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EUR/USD - ECB President strengthens the Euro but will it last?
25.05.2022

The EUR/USD pair has declined by 25 pips since the opening of the Asian session. The price movement has formed a retracement within the longer-term bullish trend, which had been forming since the 13th of May. The price is attempting to make a full-price correction and has already lost 78% of yesterday’s gains. Both the US Dollar and the Euro are being influenced by both negative and positive factors. However, the US Dollar has declined against most currencies over the past two weeks, while the Euro has seen mixed results.

The US Dollar

Comments from the members of the US Central Bank (The Fed) have boosted the US Dollar. Earlier, the President of the Federal Reserve Bank of San Francisco, Mary Daly, said that she does not expect a recession as a result of the actions of the US Fed. She noted that the US economy is strong enough to overcome the current difficulties, and ready to withstand the rate hike, while maintaining jobs and growth.

This echoes Mr Powell’s hawkish tone over the past two months. During yesterday’s speech, the Fed Chairman indicated towards further interest rate hikes, stating that the Fed “cannot guarantee the economy will not experience a recession.” This has created further support for the US Dollar this morning, as investors felt reassured that the Fed will unconditionally increase interest rates. In addition to this, the fear of a recession may also trigger the currency’s safe-haven status.

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The Euro

Over the past 24 hours, the Euro was significantly influenced by the Eurozone’s PMI economic release. In the service sector, the index decreased from 57.7 to 56.3, and the manufacturing PMI also fell from 55.5 to 54.4. In general, the activity of the European economy has slowed down but is not yet indicating a downturn. However, in the long term, it may continue to decline due to high inflation and supply disruptions, according to economists.

Nonetheless, Euro’s position continues to enjoy support that is triggered by the comments of the Head of the ECB, Ms. Lagarde. Previously, she announced the possibility of increasing deposit rates from -0.5% to a neutral or positive level, this saw the Euro increase in value by over 2%. Experts believe that this means that the regulator may raise the rate twice in the next four months. The bank president also advised that economic activity in Europe over the summer months will be booming with “hotel and flights being choc a bloc”.

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Recession

The market is hearing a lot of talk with regard to a possible recession. This can, without doubt, affect both the Euro and US Dollar, as well as other assets.

It should be noted that over the past 24 hours the US housing market fell by 16% to its lowest point since 2009 (which was towards the end of the US housing crisis). In addition to this the European, British, and US PMI have recently experienced declines and disappointment. Lastly, we have seen inflation increase significantly, and now we can also see the interest rates rising. This is a factor that traders will be following closely.

The market is anticipating tonight’s FOMC Meeting Minutes and tomorrow’s GDP confirmation. Both are likely to influence the exchange rate.

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