EURUSD has been hinting at a top in recent weeks as the upward trend slows in the pair.
The US dollar has been unable to mount a rally with the slowdown in inflation in recent weeks.
EURUSD – Daily Chart
EURUSD showed signs of a top at 1.07 but has pushed higher toward the 1.09 level. In markets, we often get this move where 1.07 should’ve been the reversal. Watch the EURUSD closely for a sell signal over the coming week or two, which could reach around 1.03.
ECB policymaker Klaas Knot has recently been taking a hawkish tone over ECB rate hikes and continued at Davos. Investors, who’ve been softening bets on monetary tightening, may be underestimating the ECB’s commitment, according to Knot. He added that policymakers are currently more concerned with the risk of doing too little.
“Our president has already announced that most of the ground that we have to cover we will cover at a constant pace of multiple 50 basis-point hikes,” the Dutch central bank chief said.
ECB President Christine Lagarde said a month ago:
“So we will continue that at a steady pace. Based on the information that we have available today, that predicates another 50-basis-point rate hike at our next meeting and possibly at the one after that, and possibly after that, but everything will also be determined by the review of data. So don’t assume that it’s a one-shot 50; it’s more than that.”
The European Central Bank has telegraphed this move for a month, so the euro needs to advance. The US dollar has not been able to find support after another softening in inflation. Still, the price action favours a euro pullback soon.
