Market Spotlight: EURUSD Balloons on FOMC - ECB Up Next

Fed – ECB Divergence GrowingEURUSD exploded higher in response to the FOMC yesterday. With the Fed having pivoted further, opting for a .25% hike, there is now growing divergence between the Fed and the ECB. The Fed is now widely expected to bring its tightening operations to a close by the summer while the ECB has been clear in reaffirming the need to press ahead with further tightening this year until inflation is back at target. As such, the market is looking for a firmly hawkish meeting from the ECB today with a .5% hike and strong signals of further hiking to come which should see EURUSD rallying further near-term.Eurozone CPI CoolingYesterday’s flash eurozone CPI data showed a cooling in inflation last month from 9% to 8.5%. However, in light of the ECB’s comments and with inflation Still well above the bank’s 2% target, this data is unlikely to fuel any softening of the ECB’s stance. This is particularly true given that core inflation remained steady at 5.2%.Focus on The GuidanceIn terms of the outlook for EURUSD, the backdrop looks very promising. A softening Fed and a more hawkish ECB should keep the pair underpinned near-term. What’s more, the drop in However, worth noting that EUR longs are at their highest level since early 2021 meaning that further upside might be a little laboured. With a .5% hike fully priced into EUR it will likely take a hawkish surprise from the ECB to drive meaningful upside from here. Therefore, focus will be on the bank’s guidance and signals around further hikes.Technical ViewsEURUSDPrice continues to run along the top of the bull channel with the latest bounce off the 1.0785 level seeing the market testing above the channel. With the retail market heavily short and momentum studies bullish here, the focus is on a test of the 1.1126 level next with only a break below 1.0785 negating the bullish view.