EUR/USD upswing gains steam as hopes of ECB tapering rise

By:
on Sep 2, 2021
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  • The EUR/USD pair spiked to the highest level in almost a month.
  • The rally happened as talk of ECB tapering rose.
  • European bond market data also point to a more hawkish ECB.

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The EUR/USD price rocketed to the highest level since August 4 as investors started pricing in for the ECB bond purchases tapering. The pair rose to 1.1867, which was about 1.75% above the lowest level in July. 

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ECB bond tapering

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The European Central Bank will hold its monthly meeting next week. This will be an important meeting considering that the bank did not hold a session in August and Christine Lagard made few comments. 

Therefore, analysts and investors in the bond market have started positioning themselves for an eventual ECB tapering. For example, the benchmark German 10-year yield rose to -0.37% on Thursday. This was the highest it has been in more than a month. At the same time, the spread between the 10-year Italian and German bond yields has also widened.

This trend is happening two days after Eurostat published the relatively strong consumer inflation data. The numbers showed that the headline CPI rose to 3.0% in August, which was significantly higher than the ECB’s target of 2.0%. 

As a result, there is a possibility that the bank will at least signal that it will soon start tapering its asset purchase. The bank is currently implementing a program to buy government bonds worth more than 1.85 trillion euros. Indeed, this week, Luis de Guindos, the bank’s vice president said that the “extraordinary measures will have to be gradually withdrawn.”

With many EU countries increasing their vaccine rollout, analysts expect that the ECB will boost its growth forecast. It will also say that the current inflation jump is temporary and that it will likely fall back to the target of 2% in the coming year. Before then, the EUR/USD will react to the latest US non-farm payroll numbers that will come out on Friday.

EUR/USD forecast

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EUR/USD

The upswing of the EURUSD continued on Thursday as investors continued pricing in tapering by the ECB. The pair rose to 1.1867, which was slightly below the 38.2% Fibonacci retracement level. It also rose above the 25-day and 50-day exponential moving averages (EMA), which is a sign that bulls are in control. 

The pair also seems to be forming an inverted head and shoulders pattern. Therefore, the pair will likely maintain the bullish momentum as hopes of ECB tapering rise.

EUR Forex