EUR/USD takes off in February, is the rise sustainable?

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EUR/USD takes off in February, is the rise sustainable?
Credit: © Reuters.

Investing.com - The EUR/USD currency pair has been in a clear downtrend since the end of May 2021, with much of the weakness linked to the Fed's increasingly hawkish stance, which has strengthened the Dollar.

However, the recent evolution of the EUR/USD, the graphical context and the forecasts in terms of monetary policy could now point towards a sustainable recovery of the Euro against the Dollar.

ECB follows the Fed's lead

This has more or less always been the case: The Fed's monetary policy is "ahead" of the ECB's. While the Fed will raise rates from March onwards according to current market expectations, the ECB will have to follow suit in the near future, which will increase the attractiveness of the European currency and reduce the comparative advantage of the dollar.

In this regard, it is worth noting that the ECB's Knot said in an interview on Dutch television on Sunday that he expected the ECB to raise rates for the first time as early as the last quarter of 2022, citing a 0.25% increase.

Strong rebound of the Euro in February and bullish signals

The last day of January and the month of February so far have also seen a strong rebound in the EUR/USD.

Starting from around 1.1150 on 31 January, the Euro Dollar peaked at 1.1485 last Friday, a rise of 335 pips in 5 days.

This upward movement allowed the EUR/USD to break through a downward trend line that had been blocking rebound attempts since the May 2021 peak, sending a bullish signal.

On the other hand, however, it should be noted that the 1.1485 threshold, coupled with the important psychological threshold of 1.15, form an important immediate resistance on the daily chart of the EUR/USD. Shortly above this is another potential resistance at 1.1530, before the psychological threshold of 1.16.

Société Générale (PA: SOGN ) quotes a EUR/USD target of 1.16

This 1.16 threshold was pointed out in a Société Générale analysis published this weekend, which justified its bullish forecast by an increasingly hawkish ECB policy expectation.

"We now expect the ECB's asset purchases to end by the middle of the year, and rates to rise in the second half of the year. The 10 March meeting now takes on added importance, as plans will be much clearer by then," the bank wrote.

"EUR/USD can reach, for example, 1.16, if risk sentiment remains strong. If you want to buy euros, EUR/GBP is on its way back to 0.85 and beyond. EUR/JPY is also an interesting buy, as the Bank of Japan increasingly remains the only dovish central bank," SG also said.

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  • Gosball gosball @Gosball gosball
    USD weakness will accelerate
    Like 1