2023/02/16 (172.035) Technical Analysis

EURUSD On The Way To The Southeast
– If 1.0636 Fails, A Fall To 1.0459 & 1.0349 Is Possible!

ECB boss Lagarde confirms interest rate

The ECB had already announced another interest rate hike for March, and this is still necessary, as ECB President Christine Lagarde emphasized today. But she hasn’t said what will come next. According to its President Christine Lagarde, the European Central Bank (ECB) intends to continue raising interest rates in the fight against high inflation. Price pressure remains strong and core inflation, which excludes volatile energy, food, alcohol and tobacco prices, is still high, Lagarde said on Wednesday evening at the European Parliament in Strasbourg. “Given underlying inflationary pressures, we plan to hike interest rates by a further 50 basis points at our next meeting in March, and we will then assess our monetary policy stance,” she said. The next interest rate meeting of the monetary authorities is scheduled for March 16th. Although confidence is rising and energy prices have fallen, the ECB expects economic activity to remain weak in the near term, Lagarde said. Since the turnaround in interest rates last July, the euro central bank has increased key interest rates five times in a row. It is still unclear what will happen after the renewed interest rate hike of half a percentage point that has been announced for March.

Inflation in the euro zone fell to 8.5 percent in January from 9.2 percent in December thanks to a weakening energy price surge. This means that inflation has fallen for the third month in a row. Nonetheless, the monetary authorities’ medium-term inflation target of two percent is still a long way off. In addition, core inflation has recently remained at 5.2 percent, which is worrying the euro watchdogs. Wages, meanwhile, have been rising faster, helped by robust employment momentum, Lagarde told MPs. The main issue in wage negotiations is how wages can to some extent catch up with high inflation. “And while most measures of longer-term inflation expectations are currently around 2%, these measures should continue to be monitored,” she noted. The ECB is paying close attention to long-term inflation expectations. If these get out of hand, the central bank’s fight against high inflation will become even more difficult.

ECB Director Panetta also for rate hike

The European Central Bank is in favor of an initially small increase in interest rates – this is intended to combat high inflation. Further steps could follow.
The Executive Board member of the European Central Bank (ECB), Fabio Panetta, has spoken out in favor of small interest rate hikes in the fight against high inflation. Small rate hikes allow for a better adjustment of monetary policy when recent rate hikes start to have an effect, Panetta said in London. According to the Italian currency watchdog, the key interest rates in the euro zone are already in the so-called restrictive range. This means that they slow down economic development. With small rate hikes, it is possible to better balance the fight against high inflation on the one hand and the impact on economic growth on the other, said Panetta. At the next interest rate meeting of the ECB on March 16, the ECB already gave clear signals for another significant interest rate hike of 0.50 percentage points. In addition, the extent of future rate hikes has so far been left open.

ECB President Christine Lagarde had said before the European Parliament in Strasbourg that after the interest rate hike in March, the extent of the rate hikes would be discussed from meeting to meeting. Accordingly, future interest rate increases will depend on the further development of economic data. On the other hand, ECB Councilor Klaas Knot recently brought another significant interest rate hike of 0.50 points into play in May. Should there not be a fundamental decline in inflation, another interest rate hike of the same size as in March could take place in May, said the Dutch central bank governor.

Luxembourg Inflation Comes Down To 4.8%
Slovakia Inflation Around All-Time At 15.2%
Inflation In Spain Raised 2nd Straight Time To 6.1%
Greece’s Inflation Eased For A 4th Straight Month To 7%
Ireland’s Inflation Eased For A 3rd Consecutive Month To 7.8%

Luxembourg’s consumer price inflation rate eased to a one-year low of 4.8 percent year-on-year in January 2023, down from 5.4 percent in the previous month and moving further away from July’s all-time high of 7.4 percent. Still, the latest reading remained well above the European Central Bank’s target of 2.0 percent. Prices rose at a slower pace for housing and utilities (3.3 percent vs 6.1 percent in December), transport (4.7 percent vs 6.2 percent), and miscellaneous goods and services (0.5 percent vs 1.2 percent). By contrast, food and non-alcoholic beverage inflation accelerated to 11.8 percent in January from 10.9 percent in December. The core rate, which excludes volatile items such as food and energy, picked up to 4.8 percent from 4.6 percent.

The annual inflation rate in Slovakia eased to 15.2 percent in January 2023, following a 22-year-high 15.4 percent in the previous month, and slightly above market expectations of 15.1 percent. Prices increased at a slower pace for food & non-alcoholic beverages (27.5 percent vs 28.1 percent in December 2022), housing & utilities (14.4 percent vs 16.8 percent), furnishings & household goods (12.2 percent vs 12.3 percent) and transport (7.4 percent vs 7.9 percent). Compared to the previous month, consumer prices were up 2.6 percent, the largest increase in a year, and following a 0.2 percent in the previous month.

The annual consumer price inflation rate in Spain accelerated to 6.1 percent in February of 2023 from 5.9 percent in the previous month, a preliminary estimate showed. The reading came in well above market expectations of 5.7 percent as electricity prices rose again after a fall in January and food prices were higher than a year earlier. On the other hand, prices of fuels and lubricants decreased following the rise in January. The annual core inflation, which excludes volatile items such as unprocessed food and energy, accelerated to 7.7 percent in February, a new high since the end of 1986.

Greece’s consumer price inflation eased for a fourth straight month to 7 percent in January 2023, from a 7.2 percent rise in the previous month. This was the lowest inflation rate since January 2022, as prices rose at a softer pace for food & non-alcoholic beverages (15.4 percent vs 15.5 percent), transport (8.1 percent vs 9 percent) and household equipment (10.6 percent vs 11.3 percent). On the other hand, cost accelerated for alcoholic beverages & tobacco (3 percent vs 2.5 percent), clothing & footwear (6.5 percent vs 5.4 percent), hotels, cafés & restaurants (7.8 percent vs 7.6 percent) and recreation & culture (3.4 percent vs 3.2 percent), while inflation was steady for education (at 2.2 percent). Meanwhile, cost declined for housing (-0.1 percent vs 2.5 percent) and communication (-1.3% vs 2.1%). On a monthly basis, consumer prices fell by 0.5 percent in January, the same as in the previous month.

Ireland’s consumer price inflation rate eased for a third consecutive month to 7.8 percent year-on-year in January 2023, the lowest since last May, but remaining well above the European Central Bank’s target of 2.0 percent. Prices rose at a softer pace for restaurants and hotels (7.3 percent vs 8.1 percent in December), while there were declines in the cost for recreation and culture (-0.2 percent vs 2.2 percent) and miscellaneous goods and services (-0.7 percent vs -0.4 percent). On the other hand, inflation accelerated for housing and utilities (26.4 percent vs 25.9 percent), transport (3.1 percent vs 2.2 percent), and food and non-alcoholic beverages (12.8 percent vs 11.7 percent). The core index, which excludes energy and unprocessed food, rose 5.0 percent in January, easing from a 5.5 percent advance in December. On a monthly basis, consumer prices dropped 0.8 percent, the largest decline since January 2016.

The EU Commission no longer sees a risk of recession – inflation is likely to fall significantly

The downturn is out! According to EU forecasts, the European economy will continue to grow this year. Inflation is set to fall to 6.4 percent, but risks remain.

According to the EU Commission, Europe will avoid a recession this year. The economy in the euro zone is expected to grow by 0.9 percent in 2023, and growth of 0.8 percent is expected throughout the EU. At the same time, inflation is expected to fall to 5.6 percent in the euro zone and 6.4 percent in the EU. The Brussels authority’s winter forecast is therefore significantly more favorable than the autumn forecast from last October. At that time, she had predicted a technical recession around the turn of the year.

“The EU seems to be avoiding a recession,” said EU Economic Commissioner Paolo Gentiloni on Monday in Brussels. The economy started 2023 on a more stable footing than expected. The threat of gas shortages has receded and unemployment remains at record lows.DXY Falls Further After CPI DataUnited States Currency And/Or Steady Near One-Month High While Euro Approaches $1.08

The dollar index fell to 102.6 on Tuesday, after inflation data showed consumer prices continued to moderate in the new year though at a slower pace than previously thought. The annual inflation rate in the US slowed only slightly to 6.4% in January from 6.5% in December, less than market forecasts of 6.2%. Still, it is the lowest reading since October of 2021. It comes after a chorus of Federal Reserve officials reaffirmed their commitment to bring down inflation with more rate increases in various statements. Fed Chair Jerome Powell also noted that rates could peak higher than anticipated if the jobs market remains robust and if inflation numbers do not abate. Moreover, the New York Fed’s latest inflation survey for January showed that Americans continued to expect elevated near-term inflation pressures.

The dollar index traded around 103.5 on Tuesday, hovering close to levels not seen since early January, with hotter-than-expected US inflation dashing hopes that the Federal Reserve will soon end its tightening campaign. The annual inflation rate in the US slowed only slightly to 6.4% in January from 6.5% in December, less than market forecasts of 6.2%, suggesting that getting inflation under control will take more time than expected. At the same time, a chorus of Fed officials reaffirmed their commitment to bring down inflation with more rate increases. The most pronounced selling activity was against the euro and the British pound. On the flip side, the dollar appreciated against the Japanese yen following the surprise nomination of Kazuo Ueda as the next BoJ governor.

The Euro strengthened to approach $1.08 in the second half of February, but remained below nine-month highs of $1.1 touched on February 1st, as investors continue to bet on a longer period of high interest rates and adjust their positions accordingly. The ECB is expected to raise key policy rates by another 50bps in March and to deliver a 25bps increase after that. The deposit rate is currently at 2.5%, but the peak rate is seen at 3.25%.