EUR/USD Tumbles Below 1.05 Following Key ECB Forum

EUR/USD Talking Points:

• EURUSD back below 1.05 threshold following key ECB Central Banking Forum

• Fed Chair Powell reiterates hawkish tone, Dollar bulls juiced

• Europe continues to struggle with high inflation, declining economic performace

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Euro bears won the battle during Wednesday‘s session as ECB President Christine Lagarde spoke with Fed Chair Jerome Powell and the Bank of England’s Andrew Bailey at the ECB‘s Central Banking Forum. Powell reaffirmed the Fed’s commitment to returning inflation to the target of 2%, while also playing down some warning signals that are flashing across markets. Powell reiterated that the US economy remains well positioned to absorb the impact of higher borrowing costs, while also stating that the economy remains strong. Powells remarks gave Dollar bulls the ammo they were looking for, as EURUSD fell on renewed hawkish commentary from the Fed.

The decline in EURUSD has been stark over the last two sessions, as the Euro continues to suffer from hawkish Fed pricing. The exchange rate had benefitted from a slight repricing of US Treasury yields over the last few weeks, as market participants repositioned amid growing recession fears. It would appear that the bid in US Treasuries reflects a growing push of “flight to quality.” The 2-year US Treasury yield, often viewed as a proxy for Fed policy, has fallen nearly 40 basis points from the monthly high of 3.45%. The Fed‘s commitment to tightening policy coupled with growing concerns over European inflation and economic performance continue to paint a bearish picture for EURUSD. For more on this morning’s ECB forum, please click here.

EUR/USD 4 Hour Chart

Chart created with TradingView

Wednesdays decline in EURUSD saw 1.05 give way, a key area that bulls have protected over the latter-half of June. Despite initially offering support, bears were able to break through with price tumbling below 1.0450. It would seem that there remains little to stop the decline at the moment, with a potential area for congestion coming into view at 1.04. Despite some exploration of price below 1.04, this zone marks the bottom for price action this month. Any sort of reversal in price action can see EURUSD return to the 1.05 threshold, but at this moment it would appear that the chips may be stacked against EURUSD bulls.

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