Euro Regains Footing on ECB Comments
The euro unexpectedly rallied against all major currencies after European Central Bank Executive Board member Lorenzo Smaghi said that the central bank may raise rates as price pressures mount. At the same time, Mr. Smaghi said that “as the economy gradually recovers and global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed, corrected.” Mr. Smaghi's comments fueled interest rate expectations and sent the euro to break above key resistance levels across the board.
As of late, traders are pricing in a zero percent chance that the ECB will hike rates twenty five basis points at its next meeting on March 3rd, according to the Credit Suisse Overnight Index Swaps. Expectations may begin to shift going forward as policy makers become increasingly hawkish. Despite the growing optimism, bulls should caution taking on aggressive trades as the yield on Portuguese, Spanish, and Irish 10 year notes continue to push higher.
Looking ahead, so long as prices can remain above 1.36, the EURUSD could witness further upside risks in light of a lite economic docket during the North American Session.
EURUSD 5 Minute Chart
Source: FXCM’s Strategy Trader
The EURUSD managed to break above 1.36 which coincides with the descending channel dating back to February 2nd. Indeed, many short positions were stopped out on the recent spike. If prices can managed to hold above 1.36, a retest towards the 1.37 in the near term should not be ruled out.
Written by Michael Wright, Currency Analyst
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