ECB Executive Board member Fabio Panetta commented today on the situation in the European economy and monetary policy, He suggested that in some industries corporate profits have risen too much because companies are 'abusing' their market power. According to the ECB member, other countries should prevent such situations, and the ECB will respond adequately if companies continue to raise prices in an environment of already higher inflation. Panetta conveyed that the situation for the ECB is challenging, and the bank must constantly assess the risks and the impact of its policies on future market reaction. Central bankers must maneuver between an insufficiently hawkish response, which could prolong an inflationary shock, and an excessive one, which could herald a period of broader instability. According to Panetta, the shock to the economy is still far from over.
U.S. and European bank stocks are erasing some of yesterday's gains today, and the ECB's Rehn suggested the U.S. should conduct 'stress tests' on mid-sized banks. The market still sees the U.S. as the potential 'epicenter' of the banking crisis, which weakens the dollar. U.S. regulators abandoned the frequent stress tests of regional banks conducted after 2008, following the Donald Trump administration's repeal of the Dodd-Frank Act, in 2018. The U.S. dollar is losing ground on the prospect of systemic risk and the Fed, which is in an extremely difficult position. Looking at the EURUSD chart on the H4 interval, we see that the pair has overcome the SMA200 and SMA100, as well as the 61.8 Fibonacci retracement. If today's Powell conference and the Fed decision are perceived as dovish a test of the 1.083 level where we see the 38.2 Fibo retracement is likely.
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EURUSD chart, H4 interval. Source: xStation5
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