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ECB Christine Lagarde struck a further blow yesterday to those looking to time any expected pause in tightening from the ECB. Lagarde warned that while inflation had not yet peaked and while there were signs of moderation, underlying inflationary pressures remain elevated.  Commenting on the current success of the bank’s tightening campaign, Lagarde noted that the effects of recent hikes “were starting to materialize” and were expected to “strengthen in the coming years.”
 

Lagarde Warns More to Come

Looking ahead, Lagarde advised that rates were likely to need to rise again to levels “sufficiently restrictive” in order to bring inflation down. Additionally, Lagarde signaled that rates would need to stay at elevated levels “for as long as necessary” in order to bring inflation down to target.
 

Bullish EUR Risks

EUR market reaction has been a little mixed on the back of these comments. The bigger view is that doves have been forced to pair back their expectations for any near-term pause from the bank. Recently we’ve heard other ECB members calling on the need for rates to rise further and remain at higher levels for longer suggesting that EUR has room to increase near-term.
 

Technical Views

EURUSD

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The reversal lower from the highs around 1.1126 has seen the market breaking down through the 1.0785 level and the bull channel lows. While below here, the focus is on a continuation lower with 1.0515 the next support level to note. However, momentum studies have flattened near-term suggesting potential for a recovery. If bulls can get back above 1.0785 near-term, the focus will shift back to 1.1126 next. 

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