Euro calm, ECB hosts central bankers

The new trading week kicked off quietly, as there are no European releases on Monday. Not surprisingly, the euro is in calm waters today, trading slightly below the 1.06 line.

Central bankers to huddle at ECB forum

The ECB will host its annual in Sintra, Portugal this week, with ECB President Lagarde, Federal Reserve Chair Powell and BoE Governor Bailey all attending. The three will have plenty to talk about, as central banks are struggling with the shifting sands in the economic landscape. Inflation has become the number one issue, with the major central banks scrambling as they play catch up with the inflation curve. The Fed and BoE have aggressively tightened policy, while the ECB has been lagging behind and only raised rates in July at the earliest. Only a few months ago, ECB President Christine Lagarde was confidently stating that the ECB would remain out of sync with the Fed with regard to monetary policy, but she has been forced to change her tune as the eurozone grapples with surging inflation, driven by lockdowns in China and the Ukraine war.

The central banks are in a quandary with regard to monetary policy. Higher interest rates will eventually curb inflation, but they also slow growth. The challenge is to raise rates sufficiently to wrestle down inflation, while ensuring a ‘soft landing’ for the economy and avoiding a recession. Agustin Carstens, head of the Bank for International Settlements (BIS) will also attend the meeting, and his message is likely to be a pessimistic one. Carstens presented the BIS’ annual report on Sunday, which warned that the “risk of stagflation looms over the global economy” due to the new inflation era and weaker growth. The report urged policy makers to take steps for “more normal” fiscal and monetary growth.

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EUR/USD Technical

• EUR/USD faces weak resistance at 1.0618, followed by resistance at 1.0680
• EUR/USD has support at 1.0544 and 1.0482

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