Post-ECB Euro Price Action Analysis: EUR/USD, EUR/JPY – DailyFX | Jewelry Dukan

Euro talking points:

  • An ECB interest rate decision was on the table this morning, with the European Central Bank announcing its largest-ever rate hike of 75 basis points.
  • EUR/USD had an open door for further gains this morning on a recent break of a falling wedge formation. That didn’t happen, however, as the meandering press conference that followed the awards statement was perhaps more confusing than anything else in the statement itself.
  • The analysis contained in the article is based on price action and chart formations. To learn more about price action or chart patterns visit our DailyFX education Section.

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It’s been a big morning for the single currency since t The European Central Bank announced its largest rate hike to date of 75 basis points. It also comes at a crucial time as the European economy is staring into the abyss due to a range of factors, some beyond the central bank’s control.

The ECB’s statement itself was somewhat contradictory. The second paragraph of the statement reads: “The Governing Council took today’s decision expecting to raise interest rates further as inflation remains far too high and is likely to remain above target for an extended period of time.” That sounds hawkish.

And then in the third paragraph – the very next paragraph – the ECB says: “Following a rebound in the first half of 2022, the latest data point to a significant slowdown in economic growth in the euro area, with the economy expected to recover later in the year and later the first quarter of 2023 will stagnate.’ That sounds very dichotomous from the second paragraph.

Reality shows that this highlights the fragility of the European economy as inflation continues to rise sharply and growth remains very weak. But – if the euro falls further, given the large amounts of imports coming into the economy, inflation could get even higher as a falling euro makes US products relatively more expensive.

This creates a potentially dizzying scenario for the European economy and this morning’s interest rate decision and accompanying press conference seemed to do little to allay fears.

There was a particular moment from Lagarde when asked to defend the ECB’s previous forecasting errors, where she struck a defensive tone and said: “How do you model coronavirus? The war in Ukraine? energy blackmail? I take the blame, but we weren’t the only ones wrong.’

That statement – doesn’t sound like she’s taking the blame. Instead, it seems as if she’s pointing to exogenous factors as to why they so completely failed to address inflation until the Fed did (or followed up), causing this divergence in EURUSD that worsened further along the way created inflationary pressures. Street as a falling currency then contributes to higher prices.

The open gateway to euro strength? Yes, that has not worked so far. EUR/USD is now down on the daybut there is a glimmer of hope as the price is currently trying to settle the support around the former wedge resistance.

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EUR/USD two hour chart

Diagram created by JamesStanley; EUR USD on trade view

If we take a step back we can see why the current point on the chart is so important…

We’re still working on parity psychological level although there has been a rupture. There hasn’t been any lasting pressure under the big number yet, and if we go back to the earlier iteration of parity that EUR/USD was at play when prices rose in 2002, it took the euro about six months to break it left level behind.

Parity started coming back into play in EUR/USD two months ago, but bulls haven’t been able to establish much through rallies with the lone exception of a trip to the upside trendline Resistance that peaked in early August.

The next few days of price action will be extremely important. While this ECB rate decision doesn’t appear to be the bullish driver the technical backdrop was intended for, it can often take some time for everything that came out this morning to sink in. For example, check out the reactions from Jackson Hole that ran for much of the week after.

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EUR/USD daily chart

eurusd daily chart

Diagram created by JamesStanley; EURUSD on trade view


The deck is loading here…

I examined this on Tuesday, as yen pairs took massive breaks. EUR/JPY was near parabolic ahead of this morning’s interest rate decision, driven by expectations of this 75 basis point hike by the ECB. The pair has gained more than 500 pips over the past few days.

But – as shown on Tuesday – the price hit a massive resistance level at 144.25. This price came in on three separate occasions in June to keep bulls at bay. And this morning it came back into the equation and helped mark the high.

EUR/JPY daily chart

eurjpy daily chart

Diagram created by JamesStanley; EURJPY on trade view


From the four-hour chart, we can get a better sense of how much prices have risen recently. That was only on Tuesday price action found Support at previous resistance, around a previous trendline projection. This led to a massive bounce with very little pullback to set up the next test of resistance. And at 144.25 we can see that level coming into play twice already today, most recently around the ECB rate decision which then led to a lower low.

There is support potential around a point of previous resistance located around 141.95 Fibonacci level until the previous one Price action swing at 142.28.

If the bulls hit aggressively, there might even be a possible support point around 143.00. But given the recent intensity of the yen breaks, there could well be breakout potential here. Perhaps the 6th time will be the stimulus at 144.25 for bulls?

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EUR/JPY four hour chart

eurjpy 4 hour chart

Diagram created by JamesStanley; EURJPY on Tradingview

— Written by James Stanley, Senior Strategist, & Head of DailyFX education

Contact and follow James on Twitter: @JStanleyFX

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