EURUSD at two-month low on central bank divergence

EUR/USD trades at its lowest level in two months on a post Fed hangover and on news that the Fed also started taper talk - highlighting the growing gap between the Fed and the ECB.

EU (1)

EUR/USD is extending losses for a third straight session. The pair trades at its lowest level in two months on a post Fed hangover and on news that the Fed also started taper talk - highlighting the growing gap between the Fed and the ECB. 

The Fed’s Bullard confirmed that FOMC Chair Jerome Powell officially kicked off taper talk at the latest FOMC meeting. 

This update comes after the Fed also surprised the market with a hawkish shift in the same June meeting, pointing to two interest rate hikes in 2023, when the meeting before nothing was expected until 2024. 

After weeks even months of reassurance that inflation was transitory, the Fed is ramping up its hawkish stance pretty quickly. This stands in sharp contrast to the ECB’s position.  

In its latest meeting the ECB was surprisingly Dovish, keeping its assets purchases at March’s elevated level. The ECB was clear that it was too soon to start talking about reining in monetary policy. 

Draghi, ex ECB President and Italian Prime Minister also weighed into the debate saying that “the case for monetary and fiscal expansion remains compelling”. 

So, with the Fed firing the taper talk gun and the ECB staying firmly dovish, circumstances favour EUR/USD bears. 

What is the ECB

Everything you need to know about the Federal Reserve


Where next for EUR/USD? 

EUR/USD trades at 2-month lows after three straight days of declines. The 50 sma on the 4 hour chart formed a death cross, crossing below the 200 sma in a bearish signal. 

The RSI is showing deeply oversold conditions so caution should be taken before placing fresh shorts. A move higher or at the very least some consolidation around this level could be expected before further declines. What’s not so clear is the timing here, RSI conditions can remain in the red for something but not forever! 

Immediate support is seen at 1.1860 a level which offered support in early April. A breakthrough here could open the door to 1.1825 the April 5 high before 1.1785 comes into play the high April 1. 

Any attempt at a recovery would need to break through resistance at 1.1890 yesterday’s low, ahead of 1.1920 and 1.20 the psychological level. A move above here could go some way to negating the near term down trend. 

How to trade with City Index

Follow these easy steps to start trading with City Index today:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for the market you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

More from EUR

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.