FX.co ★ EUR/USD ignores ECB hawkish signals and rising European inflation, Dollar rally gains momentum

Greenback is back: after a short and rather modest correction, the US dollar index resumed its growth, returning to the area of the 114th figure. The fundamental picture contributes to the strengthening of the US currency. The dollar rally is gaining momentum amid rising geopolitical tensions and increased hawkish expectations about the Fed's next steps.

The recent events in the Russian Federation (the announcement of partial military mobilization), as well as the latest comments from the Fed representatives suggest that the safe greenback will continue to be in high demand. In particular, the currency strategists of the Dutch banking group ING are confident that the dollar index will eventually reach 120. In their opinion, there are no visible obstacles to this.

All this suggests that EUR/USD buyers can only count on corrective pullbacks, which are a priori temporary. It is noteworthy that the euro, in most cases, ignores positive signals for the currency. For example, European Central Bank President Christine Lagarde announced today that the regulator will continue to raise rates "at the next few meetings." At the same time, she admitted that the Central Bank had previously made mistakes in its forecasts.

Also, today, ECB Governing Council member Olli Rehn voiced his position. In an interview with Reuters, he said that another significant rate hike is expected in October by 75 basis points. Rehn also said that, in his opinion, the European Central Bank "should consider changing the conditions of TLTRO." Another ECB representative, Peter Kazimir, made a similar statement today, announcing the need to increase the rate by 75 points at the October meeting. The head of the Central Bank of Slovakia made a rather emotional speech, saying that the ECB "must be merciless in tightening monetary policy."

Despite such hawkish messages, the EUR/USD pair remains under significant pressure. The price is steadily sliding to the support level of 0.9500, which is currently the key price barrier for the bears of the pair. According to a number of experts (in particular, Nordea and BBH Global), if sellers overcome this milestone, they will open their way to the area of 0.93 (according to BBH Global) or even 0.90 (according to Nordea analysts).

Given that the EUR/USD pair ignores hawkish signals from the ECB, we can assume that traders will ignore key European inflation releases. Tomorrow, data on German inflation will be published, and on Friday, data on the growth of pan-European inflation.

According to preliminary forecasts, consumer price indices will show positive dynamics. Both German and pan-European figures will reflect a further increase in inflation in the European region. But even if inflation reports come out in the "green zone," the euro will still remain under pressure. ECB representatives have already explicitly stated the need for a 75-point rate hike in October, so the published data on CPI growth will not be able to stop or accelerate this locomotive.

Growing geopolitical tensions, heightened fears of a slowdown in the global economy, the deepening energy crisis in Europe—all these factors, on the one hand, strengthen the safe dollar and, on the other hand, weaken the euro.

Today, it became known that the price of gas in Europe has again exceeded the mark of $2,000 per thousand cubic meters. This time, the price increase occurred amid concerns about gas transit through Ukraine in connection with the filing of a lawsuit by Naftogaz of Ukraine against Gazprom.

According to Ukrain's side, the money for gas transit to Europe was not paid on time and in full. The Russian side rejects the claims. Gazprom stated that the arbitration proceedings initiated by Naftogaz threaten to put the Ukrainian company under the sanctions of the Russian Federation, which means an automatic ban on any relations with it. Note that, at the moment, 42 million cubic meters of gas are pumped through Ukraine per day, so such an alarming news background provoked an increase in the price of blue fuel in Europe. At the same time, it is worth recalling that the Nord Stream gas pipeline is still completely stopped.

Thus, given the current fundamental background, we can assume that the EUR/USD pair will be under pressure in the foreseeable future. Therefore, it is advisable to use corrective pullbacks to open short positions. The euro is unable to reverse the trend, while the dollar is the beneficiary of increased anti-risk sentiment in the markets. The hawkish signals from the Fed only increase the demand for the US currency. The target for the downward move is 0.9500. In my opinion, it is still too early to talk about the conquest of the 94th figure—in this price area, traders can take a break in the downward offensive, fixing profits.