Did ECB Just Put Brakes on Euro’s Rally? EUR/USD, EUR/AUD, EUR/JPY

US Dollar, Euro, EUR/USD, EUR/JPY, EUR/AUD – Outlook:

The European Central Bank (ECB) might have simply raised the bar for an imminent break increased within the euro towards a few of its friends.

The ECB delivered the extensively anticipated charge hike and boosted hopes that the central financial institution is nearing a pause in its tightening marketing campaign. Going into the assembly, there have been minor indicators of fatigue in EUR’s rally – see “US Dollar Price Action Ahead of Fed Rate Decision: EUR/USD, GBP/USD, AUD/USD”, printed May 3.

After a sequence of jumbo charge hikes, the European Central Bank hiked the primary deposit charge by 25 foundation factors to three.25%, in step with market expectations. The central financial institution maintained a hawkish stance saying rates of interest weren’t but “sufficiently restrictive” to get inflation all the way down to the ECB’s 2% goal. The reference to future “policy decisions” suggests multiple charge hike within the cycle.

ECB’s downshift was in all probability in gentle of dismal Q1 GDP development, cooling inflation, and tightening of credit score situations, suggesting that the influence of the speed hikes is beginning to trickle down the economic system – “forcefully”, the ECB stated. The central financial institution’s sensitivity to the robust transmission mechanism implies draw back dangers to the terminal charge. As a consequence, money markets have now scaled again expectations of the ECB terminal charge to three.65% from 3.75% earlier than the ECB assembly, weighing on EUR.

EUR/USD Weekly Chart

Chart Created by Manish Jaradi Using TradingView

EUR/USD: Watch for indicators of any setback

From a big-picture perspective, there isn’t any doubt EUR/USD’s pattern is up (see the earlier replace printed on May 3 for extra dialogue on the bigger pattern). However, EUR is now in a stiff resistance zone of 1.10-1.12, together with the 200-week shifting common and the early-February excessive of 1.1035, not too removed from the 200-week shifting common (now at about 1.1200). A detrimental divergence (rising value related to a flattening 14-week Relative Strength Index) on the weekly charts suggests EUR/USD’s rally is wanting drained.

EUR/USD 240-minutes Chart

Chart Created by Manish Jaradi Using TradingView

To be certain, this wouldn’t essentially indicate an imminent flip decrease. Indeed, the pair may even give a shot at 1.1200. This in all probability means being watchful for any cracks within the rally. Specifically, key cushion zone is round 1.0900 on the 240-minute charts. A break beneath the help would indicate that the upward stress had pale within the brief time period.

EUR/AUD Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/AUD:Runs into a significant roadblock

EUR/AUD has retreated sharply from a powerful converged ceiling, together with the October 2020 excessive of 1.6825, roughly coinciding with the higher fringe of a rising channel from mid-2022. While the broader pattern stays up, any break beneath speedy help on the mid-April low of 1.6215 would affirm that the upward stress had peaked within the close to time period. Such a break may open the door in the direction of converged help at 1.58-1.61. For dialogue on market range in EUR/AUD, see “Australian Dollar Price Setup: EUR/AUD, GBP/AUD, AUD/JPY”, printed May 3.

EUR/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/JPY: Inverted “V”-shaped fall

The inverted “V”-shaped decline on the day by day charts suggests cracks are starting to emerge in EUR/JPY’s rally because it exams a stiff hurdle on the 2014 excessive of 149.75. Any break beneath the late-April low of 146.25 would affirm that the uptrend had truncated for now, pointing to a consolidation/minor retreat within the close to time period.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and observe Jaradi on Twitter: @JaradiManish