EUR strength amid talk of a 50 basis points ECB hike in May

EUR remains a leading performer in major forex

• Hawkish chatter from ECB’s Schnabel: The prominent hawk believes that 50bps should be on the table for May
• EUR is performing well: The EUR remains a leading performer on major forex 
• Elsewhere sentiment remains cautious: European indices are lower as US futures have dropped -0.3% overnight
• Metals and oil consolidate: In commodities, yesterday’s rebounds on gold, silver and oil are holding ground

Hawkish comments strengthen the EUR

The EUR has been strengthened once more after comments from one of the leading voices on the European Central Bank's Governing Council suggested that an aggressive 50 basis points hike could be necessary for the meeting on 4th May.

In an interview yesterday, Isabel Schnabel, the influential German representative on the Governing Council said:

“Data dependence means that 50 basis points are not off the table.”

She justifies this view by looking at data which is showing that inflation is higher and the economy more resilient than expected.

Prominent hawk on the Governing Council 

Schnabel is traditionally one of the more hawkish members of the Governing Council.

However, as an Executive Board member, she is also someone that holds a lot of influence, as this graphic from Bloomberg shows.

The key focus will be on the April inflation data

Although headline Eurozone HICP inflation has been falling in recent months, as the sharp rises in the energy costs of early 2022 drop out of the data, there is still an issue with rising core inflation.

In front of the April inflation data that is announced early next week, there is as yet no evidence to say that core inflation is sustainably moving lower. 

Core Eurozone HICP inflation is currently still moving higher.

Without core inflation sustainably moving lower, the hawks on the Governing Council will continue to argue for tighter monetary policy.

The importance of next week’s inflation announcement is as high as ever.

With the deposit rate currently 3.00%, Eurozone interest rate futures are currently pricing for a 25 basis points hike in May, with a terminal rate towards maybe 3.75% by the late summer.

So, although a 50bps hike is unlikely, it will help to sustain EUR strength moving into the ECB meeting next week.

EUR performance remains strong

This hawkish lean is one of the reasons why the EUR continues to be a strong performer on major forex.

The EUR has been one of the leading performers for a while and over the past month, only the Swiss franc is performing better versus the USD.

The boost that hawkish talk such as this should help to keep the EUR towards the top of the performers. 

EUR/USD is close to key resistance

The EUR has moved towards a position to test key resistance on EUR/USD, but there has already been a breakout on EUR/AUD.

EUR/USD

There has been a broad trading range on EUR/USD for the past few months, but there is now a decisive positive bias that is putting pressure on an upside break.

EUR/USD is once more closing in on a test of key resistance at 1.1075.

• There is a decisive one-month uptrend in place.
• A run of strong bullish daily candlesticks in recent sessions has accelerated the market higher.
• Daily RSI momentum is strongly configured to suggest that near-term weakness is a chance to buy.
• Although there has been an early pullback this morning, we would be looking to use any near-term unwind within the uptrend to buy for a test of further upside above 1.1075.

Initial support is at 1.0980/1.0999, with 1.0910 being a key higher low.

EUR/AUD

Where EUR/USD is yet to break out, we have already seen a decisive move higher on EUR/AUD.

• For the past two months, the pair has been posting a series of higher lows and higher highs in an uptrend formation.
• The rising 21-day moving average is also a very good basis of support for the rally.
• The move is coming with strong momentum, with the RSI consistently above 50 

A recent close above resistance at 1.6435 (the old August 2021 high) took the pair to its highest since November 2020. 

The next important resistance is not until 1.6825.

With old resistance becoming new support, we would see any unwinding moves within the uptrend as a chance to buy.

Initial support is at 1.6385/1.6445.

Support and resistance levels for Forex, Commodities, and Futures/Indices 

Data: MT5/IXOne

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