The European currency does not show much signs of life against the background of the lack of important statistics and another failure with a breakdown of the resistance of 1.0600. The British pound shows the volatility of about 25 points in all. But before we talk about the technical picture, I would like to touch on Lagarde's speech a little.
Investors are also still concerned about high inflation and are closely monitoring what the European Central Bank and its representatives are saying and doing. In an interview with ECB President Christine Lagarde today, she outlined the clear positions of the regulator, but this did not affect buyers of risky assets. The management of the Central Bank is afraid of the high debt burden of several European countries, especially Italy, as the increase in interest rates, which will occur from day to day, will lead to an increase in the burden of servicing the national debt. Some shits that continue to actively increase their budget deficits, it's not just about Italy anymore, may face serious problems in the future. Most recently, the President of the European Central Bank announced a planned emergency meeting to resolve the issue of further growth in bond yields. Now Lagarde has downplayed fears of a recession in the eurozone, saying her team is ready to raise rates at a faster pace — if necessary, especially if inflation continues to rise.
Let me remind you that the ECB's target is 2.0%, but it is expected that this year the overall inflation rate in the eurozone will come close to 7.0%. Representatives of the central bank will soon meet in Portugal at an annual conference dedicated to the growing consumer price index.
At the beginning of the month, the European Central Bank held a meeting, announcing a new tool aimed at eliminating the risks of fragmentation in the eurozone. However, market participants still have a lot of questions about the timing and scope of the implementation of this mechanism. Most likely, the planned meeting will shed light on the new ECB instrument.
At the moment, investors are increasingly listening to the statements of the regulator and sharply reacting to the actions of the Central Bank, as high inflation leads to a very rapid change in the situation. As noted above, the ECB confirmed in early June its intention to raise rates next month, and then again in early autumn this year. This will return the ECB deposit rate from negative territory to zero, which will be an important moment for the central bank, which has kept rates below zero since 2014.
But the moment remains much more uncertain what will happen if Lagarde does not stop there and continues raising interest rates. The region's growth prospects are deteriorating quite rapidly. Back in June, the ECB predicted the level of eurozone GDP at 2.8%, but already this estimate is unrealistic. There have already been rumors of a possible recession by the end of the year – especially against the background of continuing price increases and a serious shortage of energy resources in the Eurozone. Aggressive rate increases will only make the situation worse.
As for the prospects of the euro, there is uncertainty. It is possible to talk about serious purchases and attempts by bulls to correct the situation, but only after an obvious return and consolidation above 1.0600. It was not possible to do this last week and is not yet possible now. Only after that, prospects for recovery to the area of 1.0640 and 1.0680 will open. In case of a decline in the euro, bulls need to show something around 1.0480, otherwise, the pressure on the trading instrument will only increase. Having missed 1.0480, we can say goodbye to hopes for the recovery of the pair, which will open a direct road to 1.0430. A breakthrough in this support level will certainly increase the pressure on the trading instrument, opening an opportunity for the test of 1.0380 and 1.0320.
The British pound is aimed at updating local lows, as it is obvious that growth above 1.2320 is limited. It will be possible to talk about the resumption of the upward trend from June 14 only after the bulls gain a foothold above 1.2320, which will lead to an instant breakthrough at 1.2365 and 1.2400, where buyers will face much greater difficulties. In the case of a larger upward spurt of the pound, we can talk about the 1.2460 update. If the bears break below 1.2240, then the pound will go straight to 1.2170. Going beyond this range will lead to another downward movement already to the minimum of 1.2100, opening the way to 1.2030.
