Euro After ECB Rate Hike: EUR/USD, EUR/AUD, EUR/GBP Price Setups

The euro could attempt to recoup some of the recent losses against some of its peers, thanks to the European Central Bank’s (ECB) hawkish hike, oversold conditions, and a spate of underwhelming Euro area macro data. However, still-elevated speculative long EUR positioning could limit the gains. EUR has rebounded against the US dollar, but has continued to soften against the Australian dollar and the British pound, as forecast in the previous update – see “Ahead of Euro Area Inflation: EUR/USD, EUR/GBP, EUR/AUD Price Setups,” published May 30. The ECB raised interest rates by 25 basis points last week to the highest level in 22 years and signaled more rate hikes in coming months. Back in May, the mention that the tightening of financial conditions is “forcefully” trickling through the economy gave an impression that ECB could be nearing a pause in its tightening campaign. However, ECB President Christine Lagarde’s remarks last week that the central bank has still ground to cover indicates the ECB is in no mood to pause just yet, aiding EUR.

Economic Surprise Index and FX Positioning

Source Data: Bloomberg Euro area macro data have underwhelmed in recent weeks, as reflected in the Euro area economic surprise index (ESI). However, as the chart shows, the series tends to be mean reverting, suggesting the bar for further downside surprise in the bloc appears to be low. Better-than-expected incoming data could support the single currency. Having said that, despite the recent correction, speculative long EUR positioning is still running around the highest since 2020 and within the major currency space (see chart), suggesting continued overcrowded conditions for the single currency. EUR/USD Daily Chart EUR/USD: Upside capped? On technical charts, EUR/USD has rebounded from near quite strong support area: the March low of 1.0510, near the 200-day moving average. However, the pair has run into stiff resistance on the upper edge of the cloud on the daily charts (at about 1.0970). Also, on the higher timeframe charts, the 14-month Relative Strength Index has been capped around 50-55 – a barrier for corrective rallies. EUR/USD Monthly Chart The upshot of the above is that EUR/USD may need to consolidate a bit further within the slightly upward-sloping channel since February before a fresh trend ensues. Above 1.0970, there is resistance at the May high of 1.1100. On the downside, 1.0550-1.0650 offers quite a strong cushion.

EUR/GBP: Due For a Minor Rebound?

EUR/GBP looks oversold as it tests a key floor at the December low of 0.8545. Moreover, the cross has met the price objective of the sideway channel. A minor rebound can’t be ruled out in the short term. Such a rebound could be capped around the mid-June high of 0.8620. On the downside, a decisive break below 0.8545 could pave the way toward the August low of 0.8340. EUR/AUD Daily Chart EUR/AUD: Approaches strong support EUR/AUD is approaching a fairly strong floor on the 200-day moving average, coinciding with the mid-May low of 1.5850. The cross looks oversold, raising the prospect of a minor rebound. Any break above last week’s high of 1.6000 could pave the way toward the mid-May low of 1.6130.

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