EUR/USD forecast as ECB member hints at a 0.50% hike

By:
on May 17, 2022
  • The EUR/USD pair rose sharply on Tuesday.
  • The Dutch central bank president hinted to a 0.50% rate hike.
  • Eurostat published strong Euro area GDP data.

The euro went parabolic on Tuesday after the relatively hawkish statement by the Dutch central bank president. The EUR/USD pair rose to a high of 1.0545, which was the highest level since May 11th. It has risen by more than 1.8% from the lowest level this month. 

Hawkish ECB comments

The EUR/USD pair tilted upwards as more signs of a hawkish European Central Bank (ECB) rose. In a statement, Klaas Knot, the head of the Netherlands Central Bank said that the bank should hike interest rates by 0.50% when it meets in July. 

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Klaas is often seen as one of the most hawkish officials of the ECB. As such, there are signs that the bank will start hiking rates sooner than expected. He added:

“Based on current knowledge, my preference would be to raise our policy rate by a quarter of a percentage point. Unless new incoming data in the next few months suggests that inflation is broadening further or accumulating. If that is the case, bigger increases must not be excluded either.”

He is not alone. In a statement last week, the head of the German central bank made the case that the ECB should move sooner than later in hiking rates. The same sentiment has been shared by Christine Lagarde, the head of the bank.

The EUR/USD pair also rose sharply after the positive economic data from the Euro area. According to Eurostat, the bloc’s economy expanded by 5.1% in the first quarter. This increase was better than the median estimate of 5.0%. 

Still, the biggest concerns for the ECB are stagflation and recession. Stagflation happens when the economic growth slows while inflation remains at an elevated level. A recession will likely happen because of the significantly high oil and gas prices.

EUR/USD forecast

EUR/USD

The EUR/USD was forming the bearish flag pattern that is shown in black. Therefore, by moving upwards, the pair managed to invalidate the bearish view. Now, it managed to move above the important resistance level at 1.0471, which was the lowest level on April 28th. It has also moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is approaching the overbought level.

Therefore, there is a likelihood that the pair will maintain a bullish trend as bulls target the key resistance level at 1.0650.

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