Forex traders have suddenly become woke to the possibility of an end to ECB QE and interest rate hikes this year. As a result, EUR/USD, after two consecutive weeks of declines, has found a bit of support as traders return from their Easter break this week. Considering that market participants glossed over more hawkish tones from last week’s April ECB meeting, this recent positive shift in sentiment toward EUR/USD looks abrupt and possibly only temporary.
Prior to today’s ECB speakers talking up the prospects of a quick end to asset purchases and interest rate hikes by year end, traders had not fully bought into such an assessment. The ECB must not only contend with high inflation, but also war in the Ukraine, signs of slowing activity in the euro area. Add in aggressive Fed hiking expectations and there are certainly enough reasons to still dissuade big EUR/USD long positions.
