Interest rates

Euro Forecast (EUR) – ECB Must Raise Interest Rates and Accelerate

EUR/USD Price, Chart and Analysis

  • Market prices are expecting a rise of 75 basis points.
  • Any dovish disappointment will see the Euro plummet.

Next Thursday’s European Central Bank meeting is expected to see the central bank hike rates by 75 basis points to 1.25% in a bid to stem skyrocketing inflation. The decision and the press conference that followed will go a long way in shaping the performance of the single currency in the weeks and months to come. The idea of ​​a 75 basis point hike would have been a laugh for a few weeks with the ECB expected to move in 25 basis point increments, but with inflation continuing to ravage the single bloc, the central bank now looks likely. accelerate rate hikes as quickly as possible. .

G7 finance ministers are reportedly ready to impose a price cap on Russian oil, according to a series of market reports. The idea, to crimp Russian oil revenues in retaliation for Russia’s invasion of Ukraine, is also necessary to bring down soaring energy costs around the world, a major component of headline inflation figures. . While G7 countries are likely to approve a price cap plan, Russia has already said it will not sell to countries imposing the cap, leaving the outcome of the G7 decision uncertain in the short term at least.

While the ECB meeting is the main focal point for euro traders next week, the third snapshot of euro zone growth in the third quarter will be released on Wednesday. Growth in the bloc is anemic at best and although the second estimate for the third quarter was the strongest in three quarters, a growth rate of 0.6% does not inspire confidence.

For all economic news and events affecting the market, see the DailyFX Calendar

With the latest US NFP report pretty much in line with market expectations, the fate of the Euro and EUR/USD is firmly in the hands of the ECB next week. A 75bps rise and a hawkish press conference should see EUR/USD return above parity, while a 50bps rise will see the pair fall back towards 0.9900 and lower. On the monthly chart, three monthly lows made at the end of 2002 with a low at 0.9610 would seem the next logical target for the pair if 0.98475 is broken.

EUR/USD monthly price chart September 2, 2022

Retail Merchant Data 67.86% of traders are net long with a ratio of long to short traders of 2.11 to 1. The number of net-long traders is 4.85% higher than yesterday and 7.40% lower than last week, while the number of net-short traders is 11.70% lower than yesterday. yesterday and 3.89% lower than last week.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net buyers suggests that EUR/USD prices may continue to decline.Positioning is longer than yesterday but shorter since last week. The combination of current sentiment and recent changes gives us another EUR/USD mixed trading bias.

What is your opinion on the EURO – bullish or bearish?? You can let us know via the form at the end of this article or you can contact the author via Twitter @nickcawley1.

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