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

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.