EUR/USD clings above 1.0600 after plunging 100 pips on ECB’s decision

• The European Central Bank (ECB) will begin hiking rates in July in small increments.
• ECB’s Lagarde: Conditions to begin raising rates have been met.
• Sentiment remains negative, as global equities recorded hefty losses.

On Thursday, the EUR/USD plummeted 100 pips after the European Central Bank (ECB) decided that it would lift rates in the July meeting. However, it would do so in 25 bps increments, shifting from a hawkish decision to a dovish one, as perceived by investors, which sent the euro tumbling against the greenback. At 1.0614, the EUR/USD records minimal gains of 0.03% as the Asian session starts.

Summary of ECB’s decision; the greenback remains buoyant and weighs on the EUR/USD

Recapping the ECB’s decision, the Governing Council (GC) said it would raise rates by 25 bps at its July meeting and expects it to do it again in September. Although the market penciled in 25 bps for both reunions, the ECB opened the door for a higher increase in September. However, the GC emphasized that it would depend on the medium-term inflation outlook.

In the ECB’s press conference, the President, Mrs. Lagarde, stated that the decisions “were unanimously approved” and emphasized that conditions were met to begin raising rates.

In the same meeting, the ECB updated its forecasts, with growth estimated to finish at 2.8% vs. March’s 3.7%, while inflation estimations were revised to the upside, at 6.8% from 5.1% in March.

Elsewhere, risk-aversion continues ruling the markets. US equities finished with losses between 1.94% and 2.75%, and Asian futures followed suit. Market participants flew toward safe-haven assets in the FX space, the US Dollar. Reflection of the previously mentioned is the US Dollar Index, gaining 0.74%, sitting at 103.306.

On Friday, the Eurozone calendar will feature a speech of the ECB’s President Christine Lagarde. On the US docket, the May Consumer Price Index is expected to remain unchanged at 8.3% YoY. At the same time, the core CPI for the same period is estimated to rose by 5.9% YoY, lower than April’s 6.2%.

Also read: Forex Today: The financial world is in risk aversion mode

EUR/USD Price Forecast: Technical outlook

Thursday’s fall left the EUR/USD vulnerable to further selling pressure. On its way down, the pair broke a solid demand zone, the June 1 low at 1.0627, weekly low until June 9. The Relative Strength Index (RSI) at 45.81 further reinforces the EUR/USD’s downward bias as the RSI accelerates its downtrend.

Therefore, the EUR/USD favors the bears. That said, the major’s first support would be 1.0600. Break below would expose the May 19 low at 1.0460, followed by the YTD low at 1.0340.