Euro Weekly Forecast - Will the Euro Central Bank Disappoint the Hawks Next Week?

EUR/USD Price, Chart, and Analysis

The European Central Bank's policy decision and press conference next week appear poised to be particularly trying for ECB President Lagarde, as she attempts to strike a compromise between containing inflation and propping up a sluggish growth outlook. And this comes at a time when other major central banks are already hiking interest rates in ever-increasing increments or are fully prepared to do so. The next two Federal Reserve rate hikes will be in 50 basis point increments, as will the next Bank of Canada boost, while next week's Reserve Bank of New Zealand meeting will likely be a close call between 25 and 50 basis points. It appears increasingly likely that major central banks will begin raising interest rates by 50 basis points this year.

While other major central banks have already begun to tighten monetary policy, the ECB faces the onerous task of containing spiraling inflation while the economy stagnates. The market now expects the ECB to raise interest rates by 60 basis points this year, but if inflation is to be contained, the ECB must indicate a willingness to act aggressively and quickly. This will be a difficult sell to the market when the euro's growth slows. Markets will eventually look past central bank tough talk and wait for action. The Euro will under significant pressure in this situation. When the impending French election is combined with the ongoing Ukraine issue, the single currency is expected to remain volatile and fall further.

On the daily EUR/USD chart, the pair is trading slightly above a two-year low, which appears likely to be retested in the near future. Below this level, the double low slightly below 1.0650 becomes the area of support for the nest.