Risk appetite persists in markets. Stabilization of the EUR/USD exchange rate?

18.10.2022 11:59|Conotoxia Ltd Analyst Team

Investors in the financial markets seem to be buying riskier assets, perhaps hoping that other central banks would follow the footsteps of the Bank of England or the European Central Bank. The talk is about a soft approach to QT and further interest rate hikes.

As the Financial Times reported on Tuesday, the Bank of England is possibly postponing the start of quantitative tightening (QT) again. The central bank had originally intended to begin selling £838 billion worth of British government bonds on October 6, but postponed that plan until the end of the month. However, presently bank officials reportedly agree that reducing the balance sheet should be delayed again until the bond market stabilizes following the shock of the government's mini-budget tax proposals, most of which have since been withdrawn. BoE Governor Andrew Bailey recently said the central bank would primarily use higher interest rates, rather than quantitative tightening, as its main tool to fight inflation, BBN news reported. However, a spokesman for the Bank of England declined to comment on the report published by the Financial Times.

quotes_GBP_USD

Source: Conotoxia MT5, GBP/USD, Daily

ECB with a slower pace of hikes? Will the EUR/USD exchange rate stabilize?

European Central Bank Vice President Luis de Guindos said Monday that the ECB could not rule out the possibility of the eurozone suffering a technical recession, but added that any slowdown would not be severe. Speaking on the occasion of the 20th anniversary of the euro organized by the Consejo General de Economistas de Madrid, he noted that he sees the eurozone currency stabilizing in the coming months. De Guindos reiterated that he expects soaring inflation to begin to subside next year, according to a quote published by BBN.

Also, the Financial Times reported today that French central bank chief François Villeroy de Galhau expects the European Central Bank to continue its rapid pace of interest rate hikes until its deposit rate reaches 2 percent by the end of the year. Any increases after that point would be at a "more flexible and slower pace," the European Central Bank policy maker told the FT in an interview. The ECB could stop exchanging some of the bonds maturing under its asset purchase program from the end of this year, and balance sheet reduction will be carried out cautiously, Bloomberg reported.

EUR/USD - technical analysis

quotes_eur_usd
Source: Conotoxia MT5, EUR/USD, Daily

From the point of view of technical analysis, the EUR/USD exchange rate seems to have slowed down the downward momentum. Nevertheless, the quotation still remains inside the medium-term channel, the upper and lower limits of which could mark potential resistance and support for the EUR/USD. Thus, for the market to move at least to larger in price and time consolidation, it would first have to overcome the line outlined after the peaks. Then, possibly, the next potential resistances could be in the area of 0.9996 or 1.0191.


Daniel Kostecki, director of the Polish branch of Conotoxia Ltd. (Cinkciarz.pl investment service)

The above trade publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/2014 of April 16, 2014. It has been prepared for informational purposes and should not form the basis for investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this publication. Copying or reproduction of this study without written permission from Conotoxia Ltd. is prohibited.

 

 

 

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