. ECB's Last Dove Gives Up the Fight Against Rate Hike - Capital Street fx

ECB’s Last Dove Gives Up the Fight Against Rate Hike

05 May 2022

EUR/USD is trading down 0.57% at 1.0558

The last inflation dove in the European Central Bank’s top management appeared to give up the fight against a first-rate hike in a decade, acknowledging in a newspaper interview that neither negative interest rates nor quantitative easing is appropriate right now.

“Under current circumstances, negative rates and net asset purchases may no longer be necessary,” board member Fabio Panetta told the Italian newspaper La Stampa in an interview.

Panetta has remained doggedly reluctant to tighten policy in recent months, despite a surge in inflation that has hit its highest since the single currency was introduced, as an energy price shock has hit the Eurozone economy still awash with liquidity after a decade of generous monetary policy.

Expectations of a long tightening cycle have driven the spread between German and Italian bond yields to their highest since June 2020, when the ECB was forced by the pandemic to abandon its previous restrictions on bond purchases, and give disproportionate support to Italian and Greek bond markets through its ‘Pandemic Emergency Purchase Program’.

The comments weren’t enough to stop the euro from correcting a little after it jumped against the dollar on Wednesday in response to the Federal Reserve’s actions and comments. By 3 AM ET (0700 GMT), EUR/USD was down 0.2%, at $1.0600.

On technical fronts EUR/USD RSI stood at 26.04 and currently it is trading below 20 and 50 days MA & above 5 days MA. So, SELL position can be taken with following target and stoploss:

TRADE SIGNAL – : EUR/USD – SELL: 1.0556, TARGET: 1.0505, STOP LOSS : 1.0576