Forex Opinion & Analysis

EUR/USD: Bullish Breakouts Coming?

Lagarde comments trigger latest rally

The euro surged at the start of the week after ECB President Christine Lagarde laid out a very clear path for tightening in the coming months.

This is extremely out of character for Lagarde which perhaps highlights the urgency with which the ECB is now approaching the inflation problem.

From intentional ambiguity to a very specific path—a rate hike in July and an end to negative rates by the end of the third quarter—it’s a huge change from how the central bank has been in recent years.

The markets were already expecting the ECB to start hiking, but this confirmation highlights how important it is to start doing so straight away. They’ve already dragged their feet, but they must now avoid waiting too long once they acknowledge the problem.

The euro rallied strongly Monday, aided by a softer dollar in this particular pair, and if we get more of this kind of commentary in the coming weeks, it could go a lot further.

EUR/USD Daily & 4-Hr Chart

The pair ran into a little resistance yesterday at 1.07, around the 200/233-period SMA band on the 4-hour chart. It has traded below this over the last few months and it’s capped multiple rallies in that time. A break above here could be significant.

Above here, 1.0850 is a very interesting level where the 61.8 fib intersects the top of the descending channel and the 55/89-day SMA band. A move above here may suggest a much bigger correction is on the cards.

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