EUR/USD capped below 0.9700, ticks down after ECB Lagarde’s speech

• The euro heads lower after failing to break past 0.9700.
• ECB Lagarde's mentions of rate hikes fail to support the euro.
• EUR/USD: Stagflation might pull the euro towards 0.93 – Danske Bank.

The common currency remains on the back foot on Wednesday and is on track to complete a six-day reversal against the US dollar. The pair has turned lower from the 0.9700 area despite ECB Lagarde’s comments.

ECB’s Lagarde fails to support the euro

The President of the European Central Bank, Cristine Lagarde, has reaffirmed the importance of interest rate hikes to fight inflation in the Eurozone and announced that the Governing Council has started discussions on quantitative tightening, according to a Reuters report.

The pair, however, seems to be losing momentum, as the US dollar picks up with the market awaiting the release of the minutes of the Federal Reserve’s September meeting.

These minutes will be carefully watched to assess the reasons for the central bank to raise interest rates by 75 basis points for the third consecutive time and, more importantly, to find signals to anticipate the size of November’s move.

On the macroeconomic front, US producer prices have shown a larger-than-expected increase in September, 0.4% against the 0.2% market consensus. These figures show that inflationary pressures remain high, which offers additional reasons for the Fed to maintain its aggressive monetary tightening path.

EUR/USD: Stagflation might take the pair to 0.93 – Danske Bank

Currency analysts at Danske Bank see the pair falling further as stagflation takes hold of the eurozone’s economy: “The large negative terms-of-trade shock to Europe vs the US, a further cyclical weakening among trading partners, the coordinated tightening of global financial conditions, broadening USD strength and downside risk to the euro area makes us keep our focus on EUR/USD moving still lower (targeting 0.93) – a view not shared by the consensus.”

Technical levels to watch