The central bankers are going to have to react to the rising inflation in Europe and across the globe. Today we heard from ECB vice president de Guindos who is keen to get the rate hike cycle started. The euro immediately rallied. Later today we hear from the head of the ECB so there is a chance this morning’s move continues, though I favor a quick retest of old resistance to confirm a level of support.
Luis de Guindos, vice president of the European Central Bank, has been instrumental in pulling the euro back from its downward spiral adding his weight to the hawks at the ECB. Earlier this morning, he indicated that he did not see any reason to delay the end of asset purchases beyond July, with a rate hike 'possible' this summer or later in the year.
As a caveat, please be aware that the decision is data-dependent. However, given the ongoing Russian aggression in Ukraine, the data appears bleak, and inflation is likely to remain high. We will hear from President Lagarde later today, who might repeat de Guindos' statement, but the hawkish tone that he took will more likely be moderated by the head of the central bank.
The EURJPY broke out of a weekly inside range and over the last few days has been trading above highs last seen in 2015. If Lagarde comes out less hawkish this afternoon there is a real chance that we see price action in EURJPY come back to test the breakout level.
Dropping down to an intraday chart, there is a possibility that this morning’s breakout of yesterday’s price range fails, and we see some intraday lower swing highs and lows develop. This would make today's high more likely to be the high for the week as we probe back into the weekly range that we broke out from a couple of days ago.
The ActivTrades sentiment indicator shows that the majority of traders are short the EURJPY, so I am looking more for a retest of that weekly range and a continuation higher in the coming weeks with the move being ended when this cohort flip to neutral or bullish.
With the moves to 0.25% in the JGBs after the Bank of Japan announced it would buy unlimited notes and bonds at that rate, we did see the yen rise and the USDJPY come off its highs. But just like the diverging gap in the US benchmark yields, we are also seeing the German bunds yields rising, which will also add fuel to a bullish EURJPY.