Technical Analysis

MUFG – bullish EUR, expecting +50bp ECB February rate hike, and most likely in March too

I posted earlier from MUFG:

More from analysts at the bank, European Central Bank preview:

  • We expect the ECB to deliver another 50bps hike at next week’s policy meeting and continue to signal that at least one more larger 50bps hike is likely at the March policy meeting. We only expect a slowdown in the pace of hikes back to 25bps in Q2 when there is more concrete evidence that inflation pressures are easing.
  • It stands in contrast to our expectation for the Fed to further slow the pace of rate hikes by delivering a 25bps hike at next week’s FOMC meeting. We then expect the Fed to pause rate hikes in Q2 but are not expecting the Fed to signal yet that they will pause hikes soon. The Fed’s still relatively hawkish plan for further hikes beyond next week could help to dampen the USD selling pressure for now.
  • There are a number of key downside risks to our bullish EUR bias in the month ahead including: i) the ECB signals it is more open to slowing the pace of hike at the March policy meeting ii) the recent resilience of the euro-zone economies proves to be misleading/short-lived and growth slows sharply with more of lag than expected, and iii) geopolitical tensions between the West and Russia escalate further after tanks are sent to support Ukraine which alongside a pickup in demand from China demand lifts European energy prices.

MUFG look for a EUR/USD 1.0400 – 1.1300 range in the coming weeks.

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