EUR/USD erases gains after a jump to six-month highs on Lagarde’s comments

• ECB raises rates by 50 basis points as expected.
• Lagarde mentions next rate hikes likely to also be 50 bps.
• US economic data mixed, stocks extend slide.
• EUR/USD off highs, back to the 1.0670 area after rising to 1.0735.

The EUR/USD jumped to 1.0735, a fresh six-month high, during ECB Lagarde’s presser. The Euro is among the top performers on Thursday while the US Dollar lost momentum after mixed US data.

ECB boosts EZ yields, EUR

The European Central Bank (ECB) raises key interest rates by 50 basis points to the highest levels since 2009. In the statement, the ECB said it expects to keep rising rates as inflation “remains far too high”. During the press conference, ECB President Christine Lagarde signaled that the next rate hikes will continue to be of 50 basis points.

The comments from the ECB President boosted the Euro across the board, not only versus the US Dollar. EUR/GBP also soared to three-week highs at 0.8700 while EUR/CHF printed monthly highs at 0.9916.

In the US economic data came in mixed. On the positive side, Initial Jobless Claims dropped more than expected to 211K, the lowest level in weeks. Retail Sales in November fell by 0.6%, more than the 0.1% decline of market consensus. The Philly Fed recovered from -19.4 to -13.8. The Empire Index tumbled to -11.2 from 4.5. Industrial Production contracted 0.2% in November against expectations of a 0.1% expansion.

Despite falling versus the Euro, the US Dollar is holding strong across the board on the back of risk aversion and amid steady Treasury yields. In Europe, yields are jumping following the ECB meeting. The German 10-year yield is up by more than 8% to 2.10%, the highest in a month.

The divergence between US Treasuries and EZ bonds on Thursday is adding support to the EUR/USD. The pair moved off highs and is hovering around 1.0680, marginally higher for the day, on its way to the strongest close since mid-June.

The Euro needs to rise and hold above 1.0700 to keep the doors open to more gains. A slide under the 20-hour Simple Moving Average at 1.0650 would change the intraday bias from bullish to neutral/bearish. The next key barriers are seen at 1.0600 and 1.0570.

Technical levels