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July 19, 2022

Euro Is About To Make A Big Move

Frank Cabibi

The European Central Bank will be announcing their main refinancing rate decision on Thursday. This will bring a lot of attention to the euro, especially since the expected rate is 0.25%. Whatever the central bank decides, it will make for an interesting week for these pairs.

What To Expect

Forecasts have it set at a 25 basis point hike from 0%. This would be the first time in 6 years that the euro would be yielding a positive interest. Investors see this as big news and are likely pricing in a big move to the upside.

euro
ECB interest rate

Analysts also think that the refinancing rate will even go as high as a 50 bp hike. A hike that big will cause even more of a price surge in the short run. And investors are probably going to be pushing euro higher until Thursday.

However, in the longer term the euro is still way behind in terms of inflation. Yielding half a percent is a big event for the ECB, but it does not mean much in the grand scheme. Both the USD and EUR suffer from high inflation that isn't slowing down yet. The only difference is that the US has been combating this since for the past several months while Europe has not.

This holds true even when the euro is paired with other currencies like the kiwi, loonie, pound and buck. But it doesn't mean we won't see a decent pop in the euro's near term price this week. The long run just seems to be not in favor of the euro.

Euro Trade Setups

EUR/USD

euro

EURUSD comes up nearly 1% at the start of the NY session. Price has strong momentum on the expectation of a 25-50 bp rate hike which could take price up to test resistance around 1.03600 or even the falling trend line above that. The overall trend is still very bearish, so a profitable strategy could be to ride price up to these levels before a short setup forms.

EUR/JPY

euro

Euro-yen is in a similar situation as EURUSD, but it looks like price will come up to test 142.900 or even the 143.800s above that level. Price just crossed above support with a rising trend line below that on the 1D timeframe. A decent short opportunity lies at that triple top near 144.

EUR/CAD

euro

EURCAD has been exceptionally weak this year as price may have already topped out. Price is showing considerable rejection on the 1D timeframe after going up to touch resistance at 1.32948. More resistance sits higher at 1.33868. A close with heavy rejection could lead the pair down to the lows below 1.3.

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