Euro Surges as U.S. Interest Rates Stall: ECB Fuels Growth

The euro could extend its gains in response to the pause in U.S. interest rates, recent rate hikes by the European Central Bank, and rising inflation expectations for the Eurozone in 2023.

Mid-week, the Fed decided to pause interest rate hikes after ten consecutive increases, leaving it in the range of 5% to 5.25%, as expected. In contrast, the ECB not only raised its interest rates again, bringing its main rate to 3.5% (its highest level in 22 years), but also increased its inflation expectations for 2023. This suggests that there will be no pause in the interest rate hikes in the short term, as mentioned by its president, Christine Lagarde. As a result, the U.S. dollar continues to lose ground against its main peers, with the EURUSD being the most affected pair during the day, reaching its highest levels in over a month, near $1.0947.?

So far this month, the EURUSD has accumulated an upward movement of 2.6% by the end of the trading session on Thursday. We can also see that the price has broken above its 100-day moving average, which had been acting as resistance since mid-May.

Additionally, the chart shows a Fibonacci retracement, which indicates that the EURUSD, after falling from a high of $1.10936 in April, reached the 78.6% support level at $1.06502 at the end of May and is currently in a 4-day bullish streak near the 23.6% resistance at $1.09605. If the upward momentum continues, the next resistance level is near its 2023 high at $1.10936.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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