EUR/USD Skyrockets After ECB Decision, EUR/JPY Flies to 15-Year Highs

Euro forecast:

• EUR/USD It jumps after the ECB’s policy decision, retracing a major trend line. while, Euro / Japanese Yen It is rising to its highest level in nearly 15 years
• The European Central Bank raised interest rates by 25 basis points and revised them upward economic inflation Forecasts, which indicates a further narrowing of the horizon
• euroBuilder’s technical bias is getting stronger against some of his top peers

Most read: The forecast for the Japanese yen depends on the position of the Bank of Japan. USD/JPY ready to take off?

The euro strengthened across the board on Thursday after the European Central Bank’s monetary policy announcement. In late afternoon trading, the EUR/USD pair rose about 1.10% to $1.0945, its strongest level in five weeks. Meanwhile, EUR/JPY fared better, rising 1.25% to 153.55 yen, a 15-year high, a remarkable achievement for the single currency.

Focusing on the drivers, today’s move can be partially attributed to the ECB. The bank raised borrowing costs by 25 basis points, bringing the deposit rate to 3.50% – a level unseen in more than two decades. The institution also revised its inflation forecasts for the years 2023, 2024, and 2025 up by a tenth of a percent, to 5.4%, 3.0%, and 2.2%, respectively.

On the policy outlook, Chair Lagarde noted that there is more room to cover to restore price stability and that policymakers are “very likely” to make another hike at the July meeting, given that CPI is expected to remain “high for a very long time”. . These directives prompted a hardline re-evaluation of the hiking course, with the trade-off setting an 80% probability of rates hitting 4% by October.

While there is room for interest rate expectations to drift slightly higher for the time being, the upside path will be limited given the mounting downside economic risks. For example, if the EU economy continues to deteriorate as summer approaches, traders may start unloading higher bets after the July meeting, creating headwinds for the euro, especially against the US dollar.

Technical analysis of the EUR/USD pair

The EUR/USD technical outlook has improved after the recent rally. The chart below shows two major bullish developments worth noting: 1) the pair has regained the trend line that directed it higher since late last year, and 2) prices have broken above the 50-day Simple Moving Average.

With the prevailing sentiment, EUR/USD could continue its upward journey in the near term, but to do so it needs to close the week above 1.0915. If that happens, then buying interest could gain momentum, paving the way for a climb towards 2023 highs near 1.1090. For more strength, focus will move to the psychological level of 1.1200.

On the other hand, if EUR/USD fails to sustain the recent breakout and drops below 1.0915 and then 1.0855, sellers can return to the market, paving the way for a decline towards 1.0790/1.0755. While prices may establish a base around these levels before bouncing back, a crash is likely to lead to a retest of the May lows.

Technical chart of the EUR/USD pair

EUR/USD technical chart created with TradingView