Euro erased gains during Lagarde conference

The press conference of ECB president Lagarde has just ended and caused some moves on the market. EURUSD pair gave back all the gains it made on the surprise 50 bps hike after ECB president said the terminal rate of hikes isn't changing, it's just accelerated.

Below we present some key takeaways from opening statement and Q&A session

Opening statement:

• The ECB raised rates to bring inflation to the 2% target

• A new instrument for effective transmission of the TPI policy (bond purchase)

• Further normalization will be required

• Economic activity is declining

• Inflation reduces purchasing power

• Tourism across Europe should help the economy in Q3

• The labor market remains strong, but wage growth remains limited

• The continuation of hostilities in Ukraine poses a negative risk to the economy

• Inflation remains very high and will remain above the desired range for an extended period of time

• Further standardization may be required in subsequent meetings

• The ECB is ready to adapt any of its tools

• TPI is to be used for the smooth transmission of interest rates to all EMU economies

Q&A session:

• TPI was unanimously approved (important information, as Germany previously objected)

• Two hikes were taken into account as a "package" (this may suggest that we will have a smaller rate hike in September, as it was previously announced that in September it will be 50bp)

• Higher inflation required a bigger hike now, the introduction of flexibility in PEPP and TPI allowed for a higher hike

• All countries can use the TPI tool

• All ECB members wanted 50 bp (activities related to PEPP and TPI helped)

• TPI purchases depending on the decisions of ECB members (these will not be automatic purchases, as in the case of APP or PEPP)

• An in-depth analysis will be carried out before the commencement of purchases under TPI

• Criteria by which countries obtain support in the bond market:

              - Compliance with the EU fiscal framework

              -No serious macroeconomic imbalances

              - Fiscal sustainability

              - Reasonable and sustainable macroeconomic policy

• Weak euro was behind the decision on stronger rate hike

• The ECB is definitely more flexible without forward guidance

EURUSD bounced off the local resistance at 1.0275 and then wiped out all gains made after the announcement of the 50 bp hike. Currently, the most popular currency pair is testing support at 1.0200. Source: xStation5