EUR/USD: Sintra forum in full focus – OCBC

Euro (EUR) rose to an intraday high of 1.1829 briefly yesterday before easing. EUR was last at 1.1774 levels. ECB Vice President Guindos said that a rise in the euro beyond $1.20 could create challenges for policymakers, though he sees current levels as no cause for concern. It is highly unusual for ECB officials to made comments about the exchange rate but yesterday there was a slew of comments. ECB’s Simkus also commented that the speed at which the EUR is rising is something the ECB must monitor particularly particularly concerned – Muller signalled he is less concerned about the latest movements in EUR while Nagel said that EUR has averaged 1.1829 since it was introduced in 1999, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Bullish momentum on daily chart intact

“We are taking into account all the factors that are leading to higher and lower inflation and this is the relevant way we should see it.’ Nevertheless, we opine that the focus of these comments should be on the pace of gains, rather than about the levels after all the EUR has rallied 14% YTD. Those comments likely marked the first hint of concern or slight discomfort around the currency’s pace of appreciation.”

“At the Sintra Forum, Lagarde said that Euro-area has reach its 2% inflation target but emphasized the need to stay vigilant amid external shocks. Lagarde also pointed to unresolved questions around the evolving dynamics of wages, profits and productivity, and warned that potential supply-side shocks could still derail progress (on inflation). She also took opportunity of the platform to say that 2025 could become a ‘pivotal year’ for the status of the dollar as a global reserve currency.”

“She added ‘It’s not going to happen just like that overnight — it never did historically, but there is clearly something that has been broken, and whether it is fixable or whether it is going to continue to be broken, I think the jury is out on that.’ Bullish momentum on daily chart intact but RSI shows signs of turning lower from overbought conditions. Next resistance at 1.1820 levels, before 1.1920 levels. Support at 1.1630, 1.1550 (21 DMA). We caution for slower pace of gains or even some consolidation in the interim.”