Euro strength headed into ECB policy meeting

The euro survived a hawkish Fed pause and now faces an ECB rate decision that should contain a rate hike and a promise for more.  The ECB is expected to raise all three of its key rates by 25bps, which would bring the main refinancing rate to 4.o0%.  The ECB will also update their staff projections, which should show some weakness and potentially signal they are nearing the end of their tightening cycle.

The euro has had a good June and is currently respecting the 50-day Simple Moving Average (SMA).  With an expected improving interest rate differential and optimism that a severe recession won’t be happening, the euro has started to stabilize around the 1.07 region.   A wild card for the euro might be significant easing that comes from the PBOC.  China’s economic recovery post-COVID has struggled and a key trading partner for Europe could post a better second half of the year if the PBOC is aggressive here.

The euro appears to have two big price barriers at the 1.05 and 1.10 levels.  If Wall Street continues to remain optimistic that the Fed will be done after one rate hike and that the global growth outlook won’t face any major shocks, the bullish movement could potentially extend.

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