ECB Analysis: EUR/USD selling opportunity? Taper helps with inflation, full war shock still to come


  • The ECB has announced a quick phasing out of bond buys, boosting the euro.
  • Shoring up the currency helps the eurozone in the short term.
  • The full impact of Russia's Ukraine invasion is still to come.
  • ECB may refrain from rate hikes in 2022, bringing the euro down.

Influenced by inflation, (almost) ignoring the war – the European Central Bank has announced a fast pace of tapering its bond-buying scheme as prices rise and despite the adverse effects of Russia's invasion of Ukraine. EUR/USD has jumped, but it may be premature. 

The ECB plans to buy some €40 billion worth of bonds in April, falling to €30 billion in May and €20 billion in June. That opens the door to raising interest rates already in the summer rather than in the autumn. While that would not be considered surprising after the previous decision, it seems hawkish given the war. 

After two weeks of fighting, the Frankfurt-based institution seems to focus on the surge in commodity prices coming from Russian President Vladimir Putin's "special operation." Russia is the world's third-largest oil producer and some 40% of European natural gas is sent on orders from Moscow. Ukraine and Russia are responsible for a substantial portion of global wheat exports, and port blockades are already felt in supermarkets.

However, Russia's atrocities in a European country are pushing prices higher and destroying demand. A war on the doorstep of the eurozone is hitting confidence and also leaving consumers with less money to spend. Even if headline inflation rises, underlying prices may fall.

ECB President Christine Lagarde promised decisions based on new forecasts presented in March, but these new projections may remain slient while the cannons are heard. 

The taper announcement serves to push the euro higher and somewhat squeeze the prices hikes coming from imports. However, that is nothing in comparison to the economic damage done by the war and the sanctions, and that may eventually haunt the common currency. It may come sooner than later, providing a selling-opportunity on EUR/USD now. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD recovers toward 1.0650 ahead of US inflation data

EUR/USD recovers toward 1.0650 ahead of US inflation data

EUR/USD has found fresh demand and marches toward 1.0650 in European trading on Wednesday. The pair capitalizes on renewed US Dollar retreat but the further upside appears capped amid Germany's political instability and a cautiou market mood. Traders await US CPI data and Fedspeak for fresh directives. 

EUR/USD News
GBP/USD struggles near 1.2750, awaits US CPI report

GBP/USD struggles near 1.2750, awaits US CPI report

GBP/USD is struggling at around 1.2750 in the European session on Wednesday, unable to find any fresh impetus. Traders turn risk-averse and refrain from placing fresh bets on the pair ahead of the critical US CPI data and speeches from several Fed policymakers. 

GBP/USD News
Gold price holds above $2,600 mark, bulls seem non committed ahead of US CPI

Gold price holds above $2,600 mark, bulls seem non committed ahead of US CPI

Gold price staged a modest recovery from a nearly two-month low touched on Tuesday. Elevated US bond yields and bullish USD cap gains for the non-yielding XAU/USD. Traders now look forward to the key US Consumer Price Index report a fresh impetus. 

Gold News
US CPI data set to confirm inflation ramped up in October as traders pare back Fed rate cut bets

US CPI data set to confirm inflation ramped up in October as traders pare back Fed rate cut bets

As measured by the CPI, inflation in the US is expected to increase at an annual rate of 2.6% in October, a tad higher than the 2.4% growth reported in September. The core annual CPI inflation, excluding volatile food and energy prices, will likely remain at 3.3% in the same period.

Read more
Forex: Trump 2.0 – A high-stakes economic rollercoaster for global markets

Forex: Trump 2.0 – A high-stakes economic rollercoaster for global markets

The "Trump trade" is back in full force, shaking up global markets in the aftermath of the November 5th U.S. election. This resurgence has led to substantial shifts in both currency and bond markets, with the U.S. dollar index (DXY) jumping 2.0% + since election day.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures