FX.co ★ EUR/USD. The results of the ECB's April meeting: Lagarde's indecision, overripe decisions, the euro's "sentence"

So, the bears of the euro-dollar pair today tested the area of the seventh figure - for the first time since March 2020, when there was a huge hype around the greenback in the wake of the coronavirus crisis. Then the downward momentum faded at the base of the 6th figure, at 1.0626. To date, EUR/USD bears may well repeat the success of almost two years ago. At least the fundamental background and the technical picture are quite conducive to this.

The European Central Bank has frankly disappointed. The ECB, on the one hand, voiced hawkish notes today, reacting to record inflation growth, but on the other hand, the results of the April meeting were too soft for a trend reversal. Bulls on the pair could not organize even a minimal correction, succumbing to the onslaught of dollar bulls. While the "ECB factor" was almost the only hope for the EUR/USD bulls. All other fundamental factors either play on the dollar's side or play against the euro. As a result, the bears were able to overcome the defensive lines at 1.0850 (the lower line of the Bollinger Bands on the D1 timeframe) and 1.0805 (until recently, the price low of the year) and appear within the 7th figure.

De facto, traders overcame psychologically important price barriers, discovering the next tier, the lower limit of which conditionally passes at the bottom of the 6th figure. Of course, at the moment it looks like an ambitious goal. But on the other hand, the EUR/USD pair was in the area of the 11th figure two weeks ago, that is, 400 points higher. Therefore, it is now possible and necessary to talk about the downward prospects of the pair, given the existing fundamental background.

Returning to the ECB, it should be noted that the euro would receive significant support only if ECB President Christine Lagarde announced a rate hike at the June meeting (July high). Or if the ECB in an accompanying statement announced the need for two rounds of increases within the current year. Here, in fact, that's all. All other scenarios (including the one that was implemented today) were a priori losing for the single currency.

After all, the market for the most part, even before the April meeting, laid in prices either one 50-point increase in the rate or "two for 25". These expectations have been strengthened after an unprecedented increase in inflation in the euro area in March, when the rate jumped to 7.5%. The general consumer price index once again updated its historical record (in February it was at the level of 5.9%), reaching the highest value in the entire history of observations, that is, since 1997. After this release, some ECB representatives, in particular the heads of the central banks of Austria, Belgium and Slovenia, publicly supported two increases this year. Thus, they "added fuel to the fire" of hawkish expectations.

But the ECB remained true to itself, confirming the reputation of an overcautious, prudent and indecisive institution. Yes, on the one hand, Lagarde said that the APP program "should end" in the third quarter of this year. Whereas the increase in interest rates may begin "some time" after completion. But on the other hand, all these decisions have long been overripe. Perhaps, in January, such rhetoric would allow the European currency to strengthen its influence. But for now, traders were clearly expecting more. Therefore, the euro, among other things, has also become a victim of inflated market expectations.

Moreover, at the final press conference, the journalists asked Lagarde to comment (clarify) her phrase that "an increase in interest rates may begin some time after the end of the APP." To which the head of the ECB said that this period "can be anything - from a week to several months." Given the fact that the stimulus program is scheduled to be completed in the third quarter, one can come to a fairly obvious conclusion that a rate hike this year is far from a decided event. Such an impressive time gap allows the ECB to be quite flexible in this matter. And this "flexibility" was not to the liking of most traders: the euro fell under a wave of short positions.

All this suggests that bearish sentiment will continue to prevail for the EUR/USD pair. It is likely that after such a decline, a corrective upward rollback will follow, but in general, the downward scenario remains a priority. The euro still does not have any arguments for a trend reversal - moreover, the divergence of the positions of the ECB and the Fed "played with new colors" today. As the Fed prepares to raise rates by 50 bps in May (and possibly 50 bps in June), the ECB is questioning the wisdom of a single 25 bp hike later this year. I think additional comments are unnecessary here.

Thus, it is advisable to use any more or less large-scale corrective rollbacks to open short positions. The main targets are 1.0800 (if the correction lifts the pair to the middle of the 8th figure) and 1.0760 (the two-year price low set today).