ECB Pivots on Rates

Yesterday’s ECB meeting was a tricky event for EUR bulls. With long positions overextended ahead of the meeting and a smaller .25% rate hike well baked into price, it was going to take a clear hawkish surprise from the bank to help drive EUR higher near-term. However, this hawkish surprise didn’t materialise and EUR was seen heavily sold on the back of the meeting.

Unclear Guidance 

Along with the smaller rate hike the ECB also removed the formal commitment to further tightening from its meeting statement. Traders took that as a sign that the bank will likely follow the Fed in holding rates at current levels while it assesses the impact of past tightening. However, at the post-meeting press conference, the ECB chief was seen reiterating her previous message, signalling that the bank still has more to do with inflation still at elevated levels.

The read on the meeting then, is that rate hike chances remain alive for June but have likely fallen against a backdrop of growing concerns for the global banking sector. Though the ECB has reaffirmed that eurozone banks are in better health than their US counterparts, contagion risks from a deepening crisis in the US are a clear concern. If banking sector issues intensify in coming weeks this will likely further dilute near-term rate hike prospects weighing on EUR.

Technical Views

EURAUD

The correction lower in EURAUD has seen the market trading back down to retest the rising trend line and the 1.6428 level support. With momentum studies turned bearish risks of a break lower here are growing. Below the trend line, focus shifts to next support at the 1.6178 level next.