Hawkish ECB

Despite being on course to end the month more than 1% lower, EURUSD is rebounding firmly ahead of the weekend following some hawkish signals from the ECB yesterday and a fresh push lower in USD. On the ECB front, Lagarde delivered a hawkish message in the post-meeting presser, telling reporters that the bank had considered a further hike at this juncture and still felt further tightening would likely be necessary given the stickiness in inflation. Traders were keen to see how the ECB chief would address the volatility in French bonds with some arguing that this created a clear barrier to further ECB tightening. However, Lagarde gave no sign that the issue was fuelling any dovishness among policymakers with traders now firmly eyeing a December hike on the back of yesterday’s meeting.

Soft USD Environment

This hawkishness from the ECB comes at a time when USD is falling on weakened December tightening expectations amidst the recent AI turmoil we’ve seen. Market pricing for a Fed hike in December has dropped to around 75% despite strong GDP data this week as traders focus on the rout in AI stocks amidst the earnings misses we saw this week from Alphabet and Samsung which caused fresh downside in stocks prices. While this backdrop remains and USD weakness continued, EURUSD has room to recover higher near-term.

Technical Views

EURUSD

The pair is attempting to break back above the 1.1205 level today and is potentially carving out a double bottom against the recent lows with strong bullish divergence in momentum studies. Back above 1.1205, focus is on a broader recovery towards the 1.14 level next. If we turn lower again, however, 1.1067 will be the next support to note.