The euro and the pound sterling are rapidly strengthening against the US dollar, taking advantage of the weakness in the US economy. There is a lot of upcoming data that could affect the technical outlook of the currency pair, potentially reshaping it. We will discuss this in more detail shortly.
Now, let us take a look at the remarks from Robert Holzmann, a member of the Governing Council, who believes that the European Central Bank (ECB) has not yet conquered inflation and might have to raise interest rates again in September this year. This serves as an extra push for the growth of the European currency.
Austrian National Bank Governor Robert Holzmann said that he was joining his colleagues, who also insisted on another increase in borrowing costs. He added that the eurozone economy was not currently threatened by a recession, but the tight labor market was causing more concerns than anticipated, especially when unions might secure significant wage hikes in the near future. He admitted that the regulator was not entirely sure about further easing of inflationary pressures. He promised to monitor all incoming information to assess future economic risks. "If there aren't any big surprises, I see a case for pushing on with rate increases without taking a pause."
Notably, inflation in the eurozone still surpasses the ECB's 2% target.
Determining what to do next with rates is a key aspect of the ECB's future policy. There are many debates within the bank about this matter. Officials need to better understand whether the economy is weakening enough to lead to further inflation reduction or if prices will resume rising in the autumn.
Holzmann is one of the most hawkish policymakers at the ECB. His counterparts from Germany and Latvia—Joachim Nagel and Martins Kazaks—indicated last week at Jackson Hole that they were also inclined towards another rate hike.
"It's better to achieve a peak rate faster, which also means we can eventually start going lower earlier," he said. "It's more difficult for markets to digest a stop-and-go rate path." Holzmann believes. He added that the ECB continues to be "somewhat behind the curve" in fighting inflation. Asked if that means rate increases could continue beyond September, he said, "once we've reached 4%, then we'll discuss again."
Curiously, during the speech at Jackson Hole last Friday, President Christine Lagarde avoided any clear signals about the upcoming ECB decision, even though she acknowledged that inflation remains at a rather high level.
Regarding today's technical picture for EUR/USD, bulls have gained control over the market. To keep control, buyers should keep the price above 1.0845. This would pave the way to 1.0890. From there, the price may climb to 1.0930. However, it would be quite difficult without support from major traders. If the pair drops, I expect significant actions from major buyers only around 1.0845. If they fail to be active, it would be wise to wait for a low of 1.0850 or consider long positions from 1.0770.
Meanwhile, pressure on the pound sterling drops. The pound sterling will rise only after bulls gain control over 1.2645. Regaining this range will boost hopes for recovery to 1.2670, after which we can talk about a surge to around 1.2690. If the pair falls, bears will attempt to take control over 1.2610. If they succeed, a breakout of this range will hurt bulls' positions and push GBP/USD to a low of 1.2585, with the potential to drop further to 1.2560.
