The euro has steadied on Friday, as EUR/USD trades slightly above the key 1.0800 line.
Euro falls to April 2020 lows
ECB policymakers didn’t have much to say at the policy meeting on Wednesday, and the lack of any action was the rub that bothered investors and sent the euro lower by over 1% to 1.0757, its lowest level since April 2020. For those keeping track, it has been a miserable month of April, with EUR/USD down 2.23%.
What did we learn from the ECB meeting? The central bank essentially gave the market more of the same, maintaining monetary policy and confirming its plan to wind up bond purchases in the third quarter. ECB President Lagarde didn’t provide any hints about hiking rates and moving towards normalisation. All Lagarde would say at her presser was that the ECB will raise rates “some time after” QE is wound up.
This deliberate ambiguity points to the ECB clearly not wanting to provide any guidance. In response, the markets lowered the probability of a July hike to 50%, which sent the euro tumbling, although it has clawed back above the 1.08 line. The markets still have priced in 0.25% hikes in September and December, which would raise the deposit rate to zero. The ECB hasn’t increased rates since 2011, during a slowdown which turned into a recession. Although eurozone inflation has been accelerating, growth is weak and the ECB seems determined not to repeat the same mistake twice.
In the US, investors were relieved that March retail sales were within expectations, despite soaring inflation. Core retail sales actually beat the consensus of 1.0% MoM, with a gain of 1.1% (0.6% prior). As well, Preliminary UoM Consumer Sentiment, improved to 65.7 in April, up sharply from 59.4 in March. The UoM Consumer Expectations Index surged, pointing to stronger optimism amongst consumers about the economy.
- There is resistance at 1.0923 and 1.1008
- 1.0790 is a weak support level. Below, there is support at 1.0705
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