EUR/USD remains unfazed around parity post-ECB rate decision

• EUR/USD keeps the daily range around the parity zone.
• ECB raised its key rates by 75 bps, matching previous estimates.
• The ECB now sees the region’s economy expanding 3.1% in 2022.

The single currency now alternates gains with losses and motivates EUR/USD to keep hovering around the parity region after the ECB raised rates on Thursday.

EUR/USD now focuses on Lagarde

EUR/USD keeps the daily range after the ECB raised the interests rates by 75 bps, as widely expected. That said, the interest on the main refinancing operations, the interest rate on the marginal lending facility and the deposit facility are now at 1.25%, 1.50% and 0.75%, respectively.

In its statement, the ECB predicts that further interest rate hikes are on the table over the next several meetings aimed at undermining demand and tackle upside risks in inflation expectations.

The updated macroeconomic projections now forecast inflation to rise at an average 8.1% this year, 5.5% in 2023 and 2.3% in 2024. Back to the economic growth, the bank’s staff now sees the region expanding 3.1% in 2022, 0.9% in the next year and 1.9% in 2024.

Moving forward, market participants will now closely follow the usual press conference by Chairwoman Lagarde and the subsequent Q&A session, while the speech by Fed's Powell will also grab investors' attention.

What to look for around EUR

EUR/USD now clings to the parity region ahead of the always important press conference by Chair Lagarde after the ECB delivered a widely anticipated 75 bps rate hike.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. The latter, in the meantime, keeps closely following the prevailing debate around the size of the next interest rate hikes by both the ECB and the Federal Reserve.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals.

Key events in the euro area this week: ECB Interest Rate Decision, Lagarde press conference (Thursday) – Eurogroup Meeting, Emergency Energy Meeting (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EUR/USD levels to watch

So far, the pair is gaining 0.06% at 1.0005 and faces the next resistance at 1.0090 (weekly high August 26) ahead of 1.0161 (55-day SMA) and then 1.0202 (August 17 high). On the other hand, a drop below 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).