Profitable Trade: Euro Rises On ECB Rate Hike Bets

While it was a highly profitable ‘bullish’ trading day in the EUR/USD, the GBP/USD lagged behind and provided more fake-outs than break-outs.

The market has been overly-aggressive in terms of Bank of England rate forecasts which was evident in the cable’s latest upward move towards 1.3750. The BoE raised rates as expected while the central bank’s forecast suggests further hikes are now likely in March and May with the risk of a further move in August. This hawkish outlook was however nothing that the market has not already been priced in and thus, the GBP/USD failed to generate large market moves yesterday. Governor Andrew Bailey even cautioned against thinking “rates are now on an inevitable long march upwards.”

The situation was different and much more profitable in the EUR/USD. We went long at 1.1310 and took profit at 1.1410. The euro broke out of the technical rectangle (our analysis from 3/2/22) and started its run towards 1.1480. Reason for the bullish breakout were bets on an ECB rate hike in 2022 while ECB President Christine Lagarde spoke. She refused to repeat that a rate hike was very unlikely this year. This is interpreted as less dovish and pushed the euro upwards.

Today we will have the U.S. nonfarm payrolls report on tab at 13:30 UTC but we will stay on the sidelines ahead of the report and save our weekly profits.

Have a good weekend everyone!

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