ECB Focus on Lagarde's Presser

The markets have priced in another quarter-point hike at the next ECB meeting, so what is communicated for the meeting after that could be crucial for market reaction.

The Sticky Problem

A survey of economists conducted by Reuters shows a consensus that the shared economy is still seeing prices rise at an alarming rate. That dovetails with what ECB President Christine Lagarde has repeated: inflation is too high for too long, and further action is necessary. The phrase comes straight out of the last meeting's statement, giving rise to the firm opinion that the ECB will hike at least twice before holding rates steady through the rest of the year.

What might have dented that outlook was the recent news that the Eurozone slipped technically into a "winter recession", dragged down by poor industrial performance in Germany. But the same survey of economists shows a general expectation that the shared economy will pick up in the second half of the year. This would give the ECB room to keep hiking, and the consensus is that the staff projections will agree with this assessment.

Tomorrow and Beyond

While economists largely agree about future rate hikes, that might not be reflected on the ECB's board. Several members have already been stressing that rate hikes have gone "most of the way" towards the target for a while; however, whether or not that means a pause in July or after hasn't been made explicitly clear.

Traders will likely be keenly focused on President Lagarde's post-rate decision press conference for clues about what will happen in the next meeting. Particular attention will likely be on whether she repeats the "too high for too long" phrase or turns to the "gone most of the way" popular phrase amongst doves. The Euro has been gaining in recent days as it appears the Fed is diverging from the ECB, with its talk of a skip compared to the shared central bank seen pressing on with hikes. What the Fed signals for July compared to what the ECB does could shake up the currency pair substantially over the next few days.

Rising Wedge with a Breakout

EUR/USD might be in a rising wedge pattern, indicating that neither bulls nor bears are in control until the price breaks the top or bottom trendline. Another short-term leg down, however, might be possible, as the second trough might not be completed as of yet.

Breaking past the regional top of $1.0823 will expose $1.0850 and $1.0909, while a slide under $1.0733 will have a similar implication towards $1.0667 should it occur. In the latter event, however, if bulls fail to defend the support, the chances of a breakdown of $1.0635 will increase in the longer term.

Key Takeaways

The ECB is expected to hike rates tomorrow, with the potential for two more hikes before the end of the year. Economists believe that despite the Eurozone's recent "winter recession," the shared economy will pick up in the year's second half, providing room for further hikes. However, some ECB members have expressed the view that rates have already gone "most of the way" towards the target, and it remains unclear if there will be a pause in July or after. Traders will pay attention to Christine Lagarde's post-rate presser for clues about the next meeting. The Euro has been gaining recently as the Fed diverges from the ECB's policy.