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ECB Intends to Continue Raising Interest Rates at its March Meeting

3/7/2023 10:59 AM

The EUR/USD pair shows a slight increase, continuing the development of the "bullish" momentum that formed last Friday, March 3. The single currency is testing the level of 1.0700 for a breakout, and investors are counting on new fundamental drivers. The day before, the euro showed a fairly active growth, which was largely due to technical factors, as well as further weakening of the American currency.

Macroeconomic statistics from Europe turned out to be mixed again: Sentix Investor Confidence in March showed a decrease of 11.1 points after falling by 8.0 points in the previous month, while analysts had expected -8.6 points. Retail Sales in February increased by 0.3% after falling by 1.6% in January, while forecasts suggested an increase of 1.0%, and in annual terms, the figure decreased by 2.3% after falling by 2.8%, beating analysts' expectations at 1.9%.

Last week's data reflected that February Consumer Price Index in the euro area in annual terms corrected from 8.6% to 8.5%, while analysts expected a slowdown to 8.2%, and in monthly terms, the CPI accelerated by 0.8% after -0.2 % in January, with the forecast at -0.3%. The Core CPI added 0.8% MoM and 5.6% YoY, which was above the projected 0.0% MoM and 5.3% YoY. Against this background, the President of the European Central Bank (ECB), Christine Lagarde, said that inflation in the region will be kept at peak values for some time, which makes it possible to raise interest rates by at least 50 basis points at a meeting on March 16. Over the past year, the ECB has already adjusted the value by three percentage points, and investors are confident that this year the key deposit rate will rise to 4.00% from the current 2.50%. At the same time, Lagarde stressed that the region's economy is showing resilience amid high employment, while unemployment is at a minimum.

Bollinger Bands in D1 chart demonstrate flat dynamics. The price range is slightly narrowed from below, remaining spacious enough for the current market activity. MACD indicator is growing, while preserving a rather stable buy signal (located above the signal line). Stochastic keeps its upward direction but is approaching its highs rapidly, which reflects risks of the overbought euro in the ultra-short term.

Resistance levels: 1.0700, 1.0765, 1.0800, 1.0850. | Support levels: 1.0654, 1.0600, 1.0550, 1.0500.

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