Lagarde talks tough, Powell next at ECB

The euro remains under pressure and briefly fell below the symbolic 1.0500 level in the Asian session before recovering.

Lagarde says ECB ready to act if needed

The ECB forum in Sintra, Portugal this week is a chance for the heads of central banks to hobnob and provide encouragement in these challenging times. ECB President Lagarde, Federal Reserve Chair Powell and BoE Governor Bailey are all in attendance. Inflation has become public enemy number one, and the BoE and the Federal Reserve have responded with an aggressive rate-hike campaign as inflation nears double-digits in the US and UK.

Inflation has not spared the eurozone and accelerated to 8.1% in May. It wasn’t that long ago that Lagarde was dismissive of inflation, stating that it was temporary. Lagarde has been forced to change her tune, and the ECB has finally joined the tightening bandwagon, saying earlier this month that it would raise rates in July and again later in the year. Lagarde admitted on Tuesday that the ECB had revised downwards its growth forecasts, but downplayed concerns about a recession. Many market players would disagree, with Russia cutting energy supplies to the bloc and a very real possibility of the US economy tipping into recession.

Lagarde’s hawkish comments at the ECB forum didn’t help the euro, which lost ground on Tuesday. Investors will be listening closely as Lagarde and Federal Reserve Chair Powell address the forum later today. Market jitters over a US recession are rising, which has boosted US equity markets of late, the logic being that the Fed will have to ease up on its hawkish bias. Powell may opt to play it safe on his visit to scenic Sintra, but any hints of dialing back on rate hikes could send the US dollar lower.

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EUR/USD Technical

• 1.0544 is a weak resistance line, followed by resistance at 1.0618
• There is support at 1.0482 and 1.0408

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