EUR/USD: The difference between the levels of interest rates in the US and the Eurozone is narrowing
|“The starting point is that we should raise rates in May,” ECB chief economist Philip Lane said on Wednesday, although the size of the increase, he said, has not yet been determined (it will depend on inflation statistics and GDP data and also from the result of a survey of European banks, which should clarify whether business lending conditions are deteriorating).
"The review of bank lending will be an important factor for the ECB," Philip Lane said in comments to Bloomberg TV. This review (of bank lending) will be published in early May, just before the ECB meeting on 4 May.
Meanwhile, the EUR/USD pair, after reaching a local 12-month high of 1.1075 last week, is trying to gain a foothold in the zone above the important long-term support level of 1.0970, maintaining positive dynamics, fueled, among other things, by the narrowing difference in interest rates in the US and Eurozone, 5.00% and 3.50%, respectively, at the moment.
If the Fed is thinking about a pause in its increases, then the ECB believes that "it is too early to talk about a pause in raising interest rates," as we noted above. Talk about the size of the next increase in the ECB is around 0.25% or 0.50%.
“Some of the leaders of the US Central Bank believe that it is necessary to suspend the cycle of tightening monetary policy due to the risks of increasing pressure on the banking sector and the economy as a whole, which will eventually lead to at least a recession.” At the same time, "the majority of the ECB management believes that at the May meeting of the bank it is necessary to continue tightening monetary stimulus and again raise the interest rate by 50 basis points."
There is very little left for the EUR/USD to break into the long-term bull market zone. To do this, the pair needs to overcome the bar at 1.1090 and then consolidate there.
In an alternative scenario, there will be a rebound near the resistance level of 1.1090, and a consecutive breakdown of the support levels of 1.0970, 1.0953, 1.0910 may become a signal for the resumption of short positions with the prospect of a decline to support levels of 1.0625, 1.0520.
In the meantime, long positions are preferable, despite the apparent overbought of the pair.
Support levels: 1.0970, 1.0953, 1.0910, 1.0852, 1.0815, 1.0800, 1.0645, 1.0625, 1.0600, 1.0520.
Resistance levels: 1.1000, 1.1032, 1.1090, 1.1200, 1.1600.
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