Euro holds near weekly highs amid hawkish comments by ECB officials
- EUR/USD holds near 1.1650 weekly highs after bouncing from 1.1615.
- ECB's Schnabel affirmed on Tuesday that the bank will have to hike rates in June.
- Oil prices remain below $100 on hopes of a US-Iran peace deal.
The Euro (EUR) posts minor gains against the US Dollar (USD) on Wednesday, trading near 1.1640 at the time of writing, right below weekly highs at the 1.1650 area. Hawkish comments from European Central Bank (ECB) officials have given a fresh boost to the Euro, while hopes of a US-Iran peace deal keep USD rallies limited.
On Tuesday, ECB Board member Isabel Schnabel warned that “looking through the inflation spike is no longer an option” and that a June rate will be needed. Earlier in the day, ECB Chief Economist Philip Lane said in an interview with Nikkei that he does not think that the market needs extra guidance from the bank and seemed comfortable with ongoing speculation on upcoming monetary tightening.
Beyond that, investors remain hopeful that the US-Iran war might end through negotiation, despite Tehran’s outrage over a US attack earlier this week. These hopes are keeping Oil prices significantly below last week's highs, easing pressure on the Eurozone economies and providing additional support for the Euro.
In the US, the Dallas Federal Reserve (Fed) President Lorie Logan kept all options open on Monday, affirming that the next Fed move might either be a hike or a rate cut. Investors are likely to await the release of the US Personal Consumption Expenditure (PCE) Price Index figures, due on Thursday to better assess the central bank's rate path.
Technical Analysis: Consolidating below the range top
EUR/USD trades at 1.1638, with price action hovering just under the top of the last 10 days' horizontal channel, in the 1.1550-1.1560 area. The 4-hour Relative Strength Index (RSI) shows modest bullish momentum, while a positive Moving Average Convergence Divergence (MACD) reading hints that buyers retain some control, though they seem to require additional impulse to breach current boundaries.
A break of the May 18 high at 1.1660 would confirm a bullish reversal and bring the May 14 low, at 1.1720, into focus ahead of May's peak, in the 1.1790 area.
Bearish attempts, on the contrary, are likely to be tested at Tuesday's low near 1.1615, although the key support is at the May 21 low, near 1.1575. If this level gives way, sellers are likely to regain confidence to target April's bottom in the 1.1505-1.1525 area.
(The technical analysis of this story was written with the help of an AI tool.)
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.