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The European Central Bank (ECB) this afternoon announced an increase in interest rates of 0.5%, taking the deposit rate back to 0.00%. It also announced a new tool known as the transmission protection instrument, which should help address the risks around fragmentation.

In terms of reaction, EUR shot higher on the announcement, as most traders were only expecting a hike of 0.25%. EURUSD is up 0.8% on the day, with EURGBP gaining 0.9% as well. We note the key resistance around 1.0250 on EURUSD, which would need to be broken cleanly to support further upside.

For stocks, the DAX 40 initially fell down to 13,100 points but has since rallied back and is now moving higher. Even though higher rates are bad for equities, the notion that the Eurozone is performing better and acting to stem damaging inflation is a positive.

In rates, yields jumped across the board. The German 2yr yield is up to 0.73%, with the 10yr moving up to 1.34% in the aftermath of the announcement.

Personally, we still think the Eurozone is a difficult place right now, and so will stay on the sidelines and look to enter EUR shorts in coming days.

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