EUR/USD at Decisive Level, While the ECB Keeps Pushing It Down

Posted Monday, October 11, 2021 by
Skerdian Meta • 2 min read

EUR/USD has entered a bearish phase, after the reversal in July this year, when the crash in cryptocurrencies also started. But, these two events weren’t related. In fact, the ECB has been the main reason for the decline in the Euro. Inflation started increasing in Europe, but the ECB continues to call it transitionary.

Today, ECB’s Lane went on to call this a one-off, which is even more dovish than transitionary. EUR/USD is trading at the 200 SMA now, which has acted as support and resistance before, so there might be a bounce from here coming up. Although, the ECB continues to talk the Euro down, so chances are that EUR/USD breaks this indicator, since we are not seeing much buying pressure either. Below are the comments from ECB members Philip Lane and Knott.

EUR/USD Weekly CHart Analysis – Facing the 200 SMA

Will we see a break down or a bounce higher from here?

Comments From the ECB Chief Sconomist Philip Lane:

  • Tracking wage outcomes and differentiating between transitory and persistent changes will play an important role
  • One-off shift in wages as part of an adjustment to a transitory increase in the price level does not shift the path of underlying inflation
  • An energy price shock can simultaneously raise headline inflation but exert downward pressure on the path of underlying inflation
  • If the economy is close to the effective lower bound, it is vitally important to adopt forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched

This is really playing with fire. We’ve gone from transitory inflation in prices, to one-off wage-price spiral.

More comments from the ECB’s Lane

  • We are in an early stage of an energy shock
  • The trigger for monetary policy action isn’t there
  • ‘Mostly transitory’ means the inflation rise doesn’t have much of a footprint in the medium-term outlook
  • Response to delta involved shutdowns in Asian suppliers, which is feeding back to Europe through the supply

EUR/USD Live Chart


ECB’s Knott

  • Rising energy prices are temporary by nature
  • Rise in inflation still expected to be transitory
  • Investors need to be aware of risks of structurally higher inflation

Knott is a hawk, but still seeing inflation as transitory. The RBNZ, BoE and Fed are less in the transitory camp than the EU.

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