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Abstract: Benefiting from a weaker USD, the EURUSD started the week in the lead and gained support from hawkish comments from European Central Bank (ECB) officials.

Fundamentals

ECB President Lagarde said on Tuesday that inflation in the eurozone has entered a new stage and may continue for some time, which requires the ECB to maintain its austerity policy and avoid announcing the end of interest rate hikes.

Lagarde said that in the near future, the ECB is unlikely to announce with confidence that interest rates have peaked. At present, the problem is that relatively fast wage growth is putting inflation under pressure, while lower-than-expected productivity growth has delayed the anti-inflation process. This development will force the ECB to make a clear commitment to maintain high-interest rates for a long time.

Simkus, the Governing Council of the ECB, said that he did not rule out the possibility of raising interest rates further after the summer, because inflation was still too strong, partly because the labor market was flexible. Simkus said I wouldn't be surprised if we continue to raise interest rates in September.

As the peak interest rate approaches, the ECB will shift its focus to conveying how long it expects interest rates to remain stable. The key message revealed by Lagarde's speech today is that interest rates will rise to a sufficiently restrictive level and will remain high for the necessary time.

This shows that Lagarde is currently concerned about the correct level and duration of interest rates. Lagarde's reference to the duration of high-interest rates is an endorsement of the dovish position. Doves believe that the current debate on interest rates should change from "How high?" to "How long?". After all, it is meaningless to raise interest rates sharply if the market thinks that interest rates are unsustainable and expects to cut them quickly afterward.

Once the ECB stops raising interest rates, the description of interest rate duration may be that interest rates will remain at the current level for a "necessary long time" or that interest rates will remain at the current level "until inflation returns to the level of 2% in a sustainable way".

The current market pricing shows that the peak interest rate is 4.00%, and then by the end of July 2024, the cumulative interest rate cut will be 41 basis points. Convince the market that it is unlikely to cut interest rates will increasingly become the focus of ECB communication.

Technical Analysis

In the last week of June, the EURUSD held steady above 1.0910, getting rid of the risk of a further sharp correction.

From the technical chart, the EURUSD is approaching the selling starting point of 1.1012 on the 22nd, following the previous upward trend in 4H timeframe.

However, the current momentum indicators show that this rebound seems to have reached an overbought state, and the bullish strength may have been exhausted. Specifically, both RSI and stochastic oscillation indicators are flat in the overbought zone, suggesting that the rebound has been exhausted.

In that case, the bears will fall back to the same height as before.

Despite this, the market performance has made the bears worry too much.

Despite the obvious bear signal, there is no room for the market to fall, because the current rise is still regarded as a recovery. As for whether it can continue to break through the previous high point, we need to pay attention to the gains and losses of the left shoulder (blue arrow) 1.0971 game. Breaking through this level indicates that there will be potential for further increase. It is possible to continue to be bullish to point D and further move towards the early resistance of 1.1060.

Overall, although the indicator signal does not support the EURUSD to maintain a bullish path, at least there is no room for decline enough to continue to push the EURUSD to continue to rise. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 1.0930

Target price: 1.1184

Stop loss: 1.0800

Deadline: 2023-07-11 23:55:00

Support: 1.0868, 1.0844, 1.0820, 1.0805

Resistance: 1.0905, 1.0923, 1.0958, 1.1000