In a world where most central banks have turned aggressively hawkish to fight high inflation, China indicated looser monetary policy. China is expected to cut its key interest rate for the second time this year on Friday as Covid lockdowns sap the economy. China’s dovish approach has caused bond traders to dial back aggressive bets on Federal Reserve rate hikes. The U.S. dollar depreciated against other peers.
Today we will pay most attention to the European Central Bank decision at 13:45 Frankfurt time and the press conference 45 minutes later. The euro rose ahead of today’s decision as markets see two-quarter point interest hikes by October. The even traditionally dovish ECB sees the need for policy normalization in the face of surging price pressures. Even though no major decisions are expected at today’s meeting, the focus will be on hints about the pace of exiting the central bank’s ultra-loose policy.
EUR/USD – Short-term outlook: Bullish
Technically, the short-term outlook is bullish until approximately 1.10. Whether we could even see a further leg-up towards 1.11 will hinge on the ECB’s hawkishness. The less-likely bearish scenario eyes a downside break of 1.0790 with a lower target at 1.0650.
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