Briefly–
- ECB to debate a 50 basis point rate increase.
- Euro sees gains.
- ECB might surprise in all directions.
The euro remains upside days before the financial meeting by the European Central Bank. The common currency surged across the board following a massive rebound after trading beneath parity last week when it slumped to 0.9950 against the United States dollar.
Meanwhile, the bounce back saw EUR-USD regaining the 1.02 mark, EUR-JPY moved beyond 150, whereas other euro pairs remained bid.
The European Central Bank contributed to the upside moves. Market rumors that the bank will debate a 50 basis point rate increase (during this week’s conference) pushed the common currency higher. Besides the BOJ, the European Central Bank is the last leading bank to hike rates.
Escalating inflation amidst a weak currency challenged ECB’s financial moves, and the bank aims to ensure that market players trust the euro as a price stability anchor. Meanwhile, should you sell or buy as the currency rebounded from the latest lows?
Moreover, will we witness the ‘buy rumor sell the news’ response after the awaited ECB meeting? Everything depends on ECB’s decisions and actions. For that reason, we will check a hawkish and dovish outcome and possible reactions by the euro.
Dovish ECB to Send EUR-USD Below Parity Again
True enough, ECB’s dovish stance means delivering its first hike in several years. Meanwhile, doing that with a 25bp only will translate to dovishness.
Financial markets are pricing a 100 basis point rate increase by the European Central Bank until September, translating to a 50bp surge this week and another one in September.
That is why market players will perceive a small hike dovish. Moreover, that would see EUR/USD dropping beneath parity again.
Hawkish ECB to Trigger Further Short Squeeze
As highlighted below, ECB has to deal with a weak euro amidst surging inflation. That undermines the belief that the bank can satisfy its price stability obligation. That’s why the ECB could surprise the markets with a hawkish stance.
That would lead to a 50bp hike on Thursday before another 75bp come September. Such developments would see the common currency squeezing further, with EUR-USD and EUR-JPY targeting 1.05 and 145, respectively.
