22.04.202216:23 Forex Analysis & Reviews: EUR/USD: Lagarde and Powell cool down bullish zeal

EUR/USD is still assaulting 1.0700. After a failed attempt of a correctional growth, the bears regained control and pushed to price below 1.0800. It is a challenging task because most traders fix profits at about 1.0750, a two-year low, and open long positions, thus dampening the downtrend.

Nevertheless, the overall sentiment on EUR/USD is bearish. The pair has not found any plausible excuse to wreck the downtrend. At the same time, correctional retracements don't contradict the rule. It makes sense to use upward retracements as an excuse to open short positions at a lower price. During April, EUR/USD buyers tried a few times to settle at around 1.0900. However, each time the price dropped 1.0800 with consequent testing of the levels above 1.0700. It proves that the downtrend is still underway despite the fact the bears are not able to break support of 1.0750 and settle below this target.

This week, the single European currency found temporary support from the ECB. Vice President Luis de Guindos and later member of the ECB Governing Council Martins Kazaks said that interest rates could be increased as soon as in mid-summer, in July in particular. Such a twist caught investors off-guard. Indeed, recently, at the April policy meeting, Christine Lagarde stated that he regulator would make a pause from a few weeks to a few months before raising interest rates after the APP program is complete. In this context, remarks from Guindos and Kazaks surprised traders. As a result, EUR/USD spiked to about 1.0900.

To sum up, the ECB leader is still cautious and hesitant unlike the Fed's Chairman Jerome Powell who actually advocated for aggressive monetary tightening yesterday. First, he stated that the odds were that the funds rate would be raised by 0.5% in May. Second, Powell said that it would make sense to push ahead in this direction. Importantly, the market is almost certain that the regulator would increase the key interest rate by 50 basis points at a time at the policy meeting in May. Recently, traders have high expectations that a 0.5% rate hike is very probable at the meeting in June. Jerome Powell actually confirmed the feasibility of such forecasts.

Thus, the differential in the rhetoric of the Federal Reserve and the ECB is getting stronger, thus putting pressure on EUR/USD. The US dollar index is pinned at about two-year highs (testing 101 points) which mirrors buoyant demand for the greenback. In contrast, the single European currency is under pressure of fundamental factors such as futile peace talks between Ukraine and Russia, the energy crisis, stagflation risks, and the indecisive stance of the ECB. Amid global risk aversion, the greenback is the evident winner while the euro cannot find any support. For this reason, all efforts of the EUR/USD buyers to settle above 1.0900 are to no avail. It proves that we could use correctional retracements to open short positions.

Technical analysis suggests the same. On all longer timeframes (from 4-hour and higher), EUR/USD is either on the lower border of the Bollinger bands or between the medium and lower lines of this indicator. It means the overall downtrend.

On the 4-hour and daily charts, the Ishimoku indicator created the bearish signal when the price is below all of the indicator's lines, including the Kumo cloud. This signal confirms the bearish sentiment. The key support, that is also a downward target, is seen at 1.0750 that matches the lower border of the Bollinger bands on the daily chart. It is too early to speak about lower downward targets because the bears are not able to surpass that downward obstacle.