Today, we’ll witness the ECB equivalent of Jackson Hole taking place in the mountains in Sintra, Portugal.
Recession fears have been boiling over in the eurozone and elsewhere and have cast a long shadow on policy tightening forecasts. The Sintra forum promised to be a place where officials could try to regain control of the narrative and inject some much-needed confidence into markets.
The hawks have certainly made their presence felt with some ECB officials breaking ranks with the 25bp July hike consensus, with recent commentary by ECB Governing Council member Gediminas Simkus as well as Bank of Latvia Governor Martins Kazaks feeding such hawkish expectations. President Lagarde herself also indicated that the bank would be prepared to step up the pace of tightening due to start in July if inflation continued to worsen.
Inflation-fighting remains the ECB’s utmost priority.
And with markets learning today that Spanish inflation rose to an unexpected record of 10% in June, higher than the 8.5% median estimate by economists, and with Germany set to release its own CPI figures soon, such elevated data could well pave the way for a larger-than-25bps hike by the ECB next month.
ECB’s Sintra Forum sparking headlines
There will be a panel discussion at Sintra between the Fed’s Powell, Bank of England’s Bailey and ECB’s Lagarde at 14.00 BST.
Any hints on how policymakers plan to tackle global inflation pressures will be seized upon by traders.
Recent comments suggest that the central bankers may look to out-hawk each other to show off their inflation-beating credibility. This could also be interpreted as an aura of confidence to markets shaken by inflation risk.
EUR/USD hasn’t been able to rise above its 50-day simple moving average (SMA) over the past few sessions.
This has capped the uptrend initially from mid-May and then again from the rebound we’ve seen from the middle of this month.
The SMA currently sits at 1.05868 and acts at first resistance. Above here is the March 2020 low at 1.0636 before trendline resistance from the February high. The long-term bearish trend points to sellers eyeing up the psychologically-important 1.040 mark and then recent lows around 1.035 as targets.