EUR/USD suffers altitude sickness near 1.0770, recedes to 1.0700

• EUR/USD fades the post-ECB uptick to the 1.0770/75 band.
• The ECB plans to hike rates by 25 bps in July.
• A larger rate hike depends on the progress of inflation.

EUR/USD advanced to multi-day highs past 1.0770, although that move rapidly fizzled out and motivated spot to slip back below the 1.0700 mark on Thursday.

EUR/USD looks offered, as investors digest Lagarde’s presser

EUR/USD now looks volatile after hitting tops in the 1.0770 region on Thursday.

Indeed, sellers seem to be gaining ground following the press conference by Chair Lagarde and after the ECB left its interest rates unchanged at its meeting.

Actually, Lagarde suggested that the outlook for the future has worsened, while near-term activity is expected be negatively affected by higher energy costs and price increases has spread across other sectors. She also added that risks to inflation remain tilted to the upside.

Lagarde said that the policy decision was unanimous and the bank intends to raise rates by 25 bps in July, while a larger hike will be dependent on how inflation evolves in the next months.

What to look for around EUR

EUR/USD continues to trade in a side-lined mood near 1.0700 for the time being.

The pair’s recent multi-week recovery has been on the back of supportive ECB-speak, which continued to point at an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is losing 0.04% at 1.0712 and a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the other hand, immediate up barrier emerges at 1.0786 (monthly high May 30) seconded by 1.0933 (100-day SMA) and finally 1.0936 (weekly high April 21).