Euro looks firmer around 1.0950 on hawkish ECB.

Euro regains further traction and adds to Monday’s gains.Stocks in Europe reverse initial gains and trade in a mixed tone.

EUR/USD climbs to daily tops in the 1.0940/50 band.

ECB’s Lagarde said rates must remain high for as long as necessary.The ECB Forum in Portugal remains in centre stage.

The Euro (EUR) has continued its positive momentum from Monday, resulting in EUR/USD reaching the 1.0940/50 band, or 2-day highs, on Tuesday. On the other hand, the US Dollar is experiencing a downward correction, leading to the USD Index (DXY) trading at two-day lows in the mid-102.00s due to the absence of a clear direction in US Treasury yields. Meanwhile, German 10-year Bund yields are attempting a modest rebound past the 2.30% level.

Contributing to the daily uptick in EUR/USD emerges European Central Bank (ECB) Board member Martin Kazaks (hawk) after he stated that he sees rate hikes extending beyond July, despite the economy softening. He mentioned that he cannot determine at the moment the extent to which rates will increase. Moreover, he pointed out that the markets are making a mistake by predicting rate cuts.

Also underpinning the bid bias in the single currency, ECB President Lagarde argued that inflation in the euro area is excessively high and affirmed the bank’s commitment to achieving the inflation goal regardless of the circumstances. Lagarde emphasized the need to implement sufficiently restrictive interest rates, intending to maintain elevated rates for as long as needed. She also noted that the impact of increasing wages on inflation has recently been magnified. She also mentioned that they have yet to observe the complete consequences of the cumulative rate hikes implemented since last July.

Finally, ECB board member Gediminas Simkus (hawk) suggested that an interest rate hike in September should not be ruled out and reiterated that rates must remain in restrictive levels to clinch the bank’s inflation target.

In the meantime, the annual ECB Forum on Central Banking in Portugal enters its second day, with Christine Lagarde, the ECB President, and board members Fabio Panetta (dove), Isabel Schnabel (hawk), and Frank Elderson (centrist) all scheduled to speak.

The potential next steps by both the Federal Reserve and the European Central Bank in normalizing their monetary policies are still being debated amidst increasing speculation of an economic slowdown on both sides of the Atlantic.

Investors are anticipating another 25 bps rate hike by the ECB in July, while the Federal Reserve is expected to follow suit, according to recent comments and testimony by Chair Jerome Powell.

Regarding US data, Durable Goods Orders and New Home Sales for May, FHFA House Price Index for April, and the Consumer Confidence gauge by the Conference Board for the current month are scheduled to be released later in the session.

Daily digest market movers: Euro appears well bid north of 1.0900.Extra US Dollar selling lends legs to Euro on Tuesday.Consumer Confidence in Italy surprised to the upside in June.

ECB Lagarde reiterated inflation remains too high.ECB Kazaks suggested talks of rate cuts are premature.ECB Simkus did not close the door to a September hike.

US, German yields attempt a tepid rebound in the European morning.

Investors’ focus will be on the release of US Consumer Confidence.

Technical Analysis: Euro remains supported by the 1.0840 zone

EUR/USD manages to gather some impulse and embarks on a potential rebound to, initially, the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1181, just before another round level at 1.1200.

On the downside, the June low at 1.0844 (June 23) emerges as the immediate support prior to the provisional 100-day SMA at 1.0811. The loss of the latter exposes a deeper pullback to the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).

The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0572.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.

If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

EUR/USD clings to gains near 1.0950 on hawkish ECB commentary

EUR/USD is extending the rebound toward 1.0950 following ECB President Christine Lagarde’s hawkish rhetoric at the ECB Forum. The US Dollar struggles to find demand in the risk-positive market environment, helping the pair continue to stretch higher ahead of US data.

EUR/USD News

GBP/USD retreats toward 1.2700 following earlier rebound

GBP/USD lost its traction after rising above 1.2750 in the European morning and erased a large portion of its daily recovery gains. With the US Dollar staying on the back foot ahead of macroeconomic data releases, however, the pair’s losses remain limited.

GBP/USD News

Gold falls to $1,920 area as US yields rebound

Gold price reversed its direction and declined toward $1,920 following a test of $1,930 earlier in the day. The benchmark 10-year US Treasury bond yield is back above 3.7% ahead of US data, making it difficult for XAU/USD to hold its ground.

Gold News

BTC flatlines while altcoin bulls rethink their strategy

Bitcoin price continues to resist falling under bears control as it hovers around the $30,000 psychological level. While the initial run-up in BTC benefitted altcoins like ETH and XRP, the current state of struggle for BTC has caused many altcoins to remain flat.