ECB hikes 50bps, as expected. Another 50bps hike to come in March

During the press conference, Christine Lagarde seemed to be talking out of both sides of her mouth.

EU (2)

The ECB hiked interest rates by 50bps to bring the refining operations rate to 3.00%, as expected. This is the highest level since 2008!  In addition, the statement pre-committed to an additional 50bps rate hike at the March meeting.  After that, decisions will be made on a meeting-to-meeting basis. 

However, during the press conference, Christine Lagarde seemed to be talking out of both sides of her mouth.  At one point she said that the ECB “intends” to hike rates by 50bps.  Therefore, the March rate hike doesn’t seem like it’s a done deal.  However, later she said that under all scenarios, significant hikes are needed (referring to the March 50bps hike). 

As with the FOMC meeting yesterday, the ECB statement was “as expected”, while Christine Lagarde’s press conference was less hawkish than expected and even a bit confusing.

EUR/JPY was one of the biggest movers after the rate hike and subsequent press conference. After trading sideways for the last week and a half between the 50-day and 200-Day Moving Averages (140.92/141.79), EUR/JPY was sold aggressively.  The pair broke below the recent range and has plenty of room to run on the downside.  First support isn’t until the lows of January 3rd at 137.39.  Below there, price can fall to the 50% retracement level and then the 61.8% Fibonacci retracement level from the lows of 2022 to the highs of 2022 at 136.40 and 133.56, respectively.  Resistance is close, at the bottom of the recent range and the 200 Day Moving Average.  Above the top of the range and the 50 Day Moving Average, price can move to the bottom upward sloping trendline of the ascending wedge (the pair broke below on December 20th, 2022) near 145.65.

Daily EUR/JPY Chart

Source: Tradingview, Stone X

**A few hours after the press conference, as after the last few press conferences, ECB “Sources” were out to clarify anything that may have been missed or misinterpreted.  This time, the sources noted that there may be one or two more rate hikes of 25bps or 50bps, and that they expect a terminal rate around 3.5%.

The ECB hiked rates by 50bps, as expected, and said that it intends to continue it again at the March meeting.  However, Christine Lagarde sounded less sanguine about it. EUR/JPY sold off aggressively after the meeting and during the press conference.  There is a good deal of resistance above for the pair.  But if it breaks back above the recent range, there is plenty of room for it to run!

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account