Euro flatlines above 1.1700 with ECB Lagarde, Trump-Xi summit on focus
- EUR/USD consolidates losses above 1.1700, about 0.65% lower on the week.
- Safe-haven flows and growing expectations of Fed rate hikes are supporting the US Dollar.
- Investors are in a "wait-and-see" mode, with the Trump-Xi meeting and ECB Lagarde's speech in focus.
The Euro (EUR) is hovering right above 1.1700 against the Dollar (USD) on Thursday, about 0.65% lower so far this week. Investors are bidding their time, awaiting the outcome of a two-day summit between US President Donald Trump and Chinese President Xi Jinping, with an eye on European Central Bank (ECB) president Christine Lagarde’s speech later on the day.
The Greenback is holding the upper hand this week, supported by safe-haven flows amid the deadlock in Iran’s war and raising bets that the US Federal Reserve will be forced to hike rates at the end of 2026 or the beginning of 2027, as energy prices are boosting inflationary pressures.
US Producer Prices Index (PPI) figures endorsed these views on Wednesday, showing a 1.4% rise in April, twice the 0.7% advance seen in March, with the year-on-year rate accelerating to 6%, its highest reading since December 2023. These figures follow the strong Consumer Price Index (CPI) data released and add pressure on the US Federal Reserve (Fed) to bring rate hikes back to the table.
The CME Fed Watch Tool shows that futures markets are now pricing a 31% chance of a rate hike in December, up from 22% one week ago. These hopes have fuelled a rally in US Treasury yields and boosted the US Dollar across the board this week.
In the Eurozone, Spain’s Harmonised Index of Consumer Prices (HICP) confirmed the inflationary pressures stemming from the Middle East conflict with a 3.5% year-on-year growth in April, up from 3.4% in March. The focus now shifts to the European Central Bank President Christine Lagarde’s speech in Aachen, Germany, where she might provide some clues about the timing of the bank’s next interest rate hike, with markets pricing a tightening move in June or July as the latest.
Technical Analysis: Euro keeps looking for direction around 1.1700
The technical picture in the 4-hour chart shows the EUR/USD keeping a bearish near-term tone, with the Moving Average Convergence Divergence (MACD) indicator in negative territory, yet with recent readings turning slightly less negative, and the Relative Strength Index (RSI) remains below the midline, together suggesting downside pressure persists.
On the topside, the pair might find resistance at Wednesday's high in the area of 1.1740, ahead of the top of the last three weeks' trading range, around 1.1795, and April's peak, at 1.1851.
On the downside, the 1.1700 level is providing support on Thursday and keeping bears away from the key support area between 1.1645 and 1.1675, which contained downside attempts several times in April. A confirmation below those levels would bring April's bottom, near 1.1510, into focus.
(The technical analysis of this story was written with the help of an AI tool.)
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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