EURUSD Lagarde puts off the possibility of a rate hike, target of 1.1170 becomes clearer

European Central Bank President Christine Lagarde reiterated Friday morning that the conditions for a rate hike are highly unlikely to be met next year.

Lagarde was speaking at the European Banking Congress in Frankfurt, where she warned that the ECB “should not rush into a premature tightening” of monetary policy.

The euro fell after Ms. Lagarde's comments, dropping below $1.1300. Banking stocks also fell about 2%. The resurgence of Covid cases in Europe also weighed on investor sentiment Friday morning, with Austria announcing that it would impose a fourth nationwide lockdown on Monday.

Ms. Lagarde had already sought to dampen expectations of an interest rate hike next year, following the ECB's October policy meeting.

In her speech today, Ms. Lagarde said that high inflation rates were likely to continue to rise until the end of the year. On Wednesday, it was confirmed that eurozone inflation reached 4.1% year-on-year in October, more than double the ECB's target.

Ms. Lagarde, however, said the inflationary pressure was “unwelcome and painful. But she said that while the ECB was taking concerns about rising inflation seriously, she argued that the drivers of these price pressures were likely to ”fade over the medium term, which is the horizon that matters for monetary policy.

She did not see “the conditions in place, either at the level of the economy as a whole or at the sectoral level, for inflation rates above our target to become self-sustaining.”

Thus, Ms. Lagarde explained that while the ECB had seen strong “catch-up demand” in the euro area, she did not see “excessive demand.”

The euro against the dollar is now reversing a so-called “morning star” reversal candlestick pattern and restarting the bearish momentum interrupted only for two sessions.

Prices remain below a bearish oblique as well as the 13- and 34-period descending moving averages. It is therefore likely that the pair will reach the target of a double top pattern validated in September on 1.1170, which corresponds to a support line defined by the June 2020 lows.

 (Chart Source: Tradingview 21.11.2021)

A return above the day high at 1.1375 would be the first signal of price stabilization but the trend would only reverse above the former support at 1.1525 and the bearish oblique. To sum it up, sellers are well in control for now with a short play down to 1.1170 the next likely move.

Support & Resistance Levels:

R3      1.1913

R2      1.1700

R1      1.1525

S1      1.1241

S2      1.1170

S3      1.1100

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.