An Unprecedented 75-Bps Hike Sends the Euro Above $1

EUR/USD at Technical Crossroad. Bounce-Or-Break Scenario in Play

Last week the Euro started a decent rally as the markets digested the ECB’s decision to add 75 basis points to the interest rate. This rise was largely anticipated but during the press conference, ECB President Christine Lagarde offered hints that another mega hike may follow. She later tweeted “If High Hikes Needed, We Will Do So”.

In a speech delivered at the same time as the ECB press conference, Fed Chair Powell also noted the importance of fighting high inflation. His tone suggested that the Fed is getting ready for a big hike as well, which makes this week’s CPI release a very important one.

Key Data for the Week Ahead.

Tuesday at 12:30 pm GMT we take a look at the always important U.S. Consumer Price Index and its Core version, which excludes food and energy from the calculation. The CPI measures the changes in the price that consumers pay for the goods and services they purchase and is one of the main gauges of inflation.

The forecast for the CPI is -0.1% (previous 0.0%) and the Core version is expected to remain unchanged at 0.3%; inflation is still a major concern for the Fed, so a higher CPI reading could bring a higher rate hike.

Thursday at 12:30 pm GMT the U.S. Retail Sales come out, together with the Core version (excludes automobiles from the calculation). The forecast for the “vanilla” version is 0.0%, the same as the previous, while the Core version is expected to show a 0.1% change from the previous 0.4%.

The final release of the week will be the University of Michigan Preliminary Consumer Sentiment survey, scheduled for Friday at 2:00 pm GMT. Consumer sentiment is a leading indicator of consumer spending, which accounts for a majority of the entire economic activity of a country. That’s the reason why a reading above expectations is beneficial for the currency. Friday’s expected number is 59.8 (previous 58.2).

Technical Outlook – EUR/USD

The week opened with a price gap and usually, these gaps tend to be closed eventually. In other words, the price is likely to return to the place where the gap originated but the timeframe is uncertain.

A similar scenario took place last week: Monday’s candle opened lower than Friday’s candle closed (that gap is already closed). This time, Monday’s candle opened higher than Friday’s candle closed and now the pair is touching a long-term bearish trend line, the upper Bollinger Band, and has just pierced through the 50-day Moving Average.

This confluence zone of resistance could be a good place for the price to bounce lower and close the gap but on the other hand, a break would indicate that the Euro bulls are still in control and looking for a stronger rally. And besides, the closing of the gap is not a certainty, so we may very well see an extended climb if a break does happen.