Euro Seeking Rebound Ahead of March 2022 ECB Meeting

The euro is seen continuing its second day of strengthening in various currency pairs, but analysts are still holding a pessimistic view.

The euro was observed continuing its second day of strengthening in various major and cross currency pairs at the start of the European session (9/March). EUR/USD has climbed more than 0.5 percent through the 1.0950s, while EUR/JPY and EUR/CHF are up about 0.6 and 0.3 percent, respectively. Nevertheless, analysts are still pessimistic about the Single Currency.

EUR/USD Daily chart via TradingView

Bloomberg reports that the European Union is discussing plans to issue joint bonds in the near future. The realization of the joint bond issuance could be a step forward towards the EU's fiscal unity, making it supportive for the euro exchange rate.

Traders and investors were also reluctant to continue selling euros ahead of tomorrow's European Central Bank (ECB) meeting, thus helping Euro pairs to stick out. However, the majority of market players remain reluctant to buy the euro.

There are two factors weighing on the euro's move at the moment. First, the ECB meeting is likely to reveal a more dovish tone of monetary policy and/or lower economic growth projections. Second, most market players are still worried about the risk of stagflation in Europe as a result of the Russia-Ukraine war.

"(EUR/USD)'s 5.4% or so decline since last week was the sharpest since the first quarter of last year and left the pair technically oversold. However, buyers will likely be on the sidelines ahead of the US CPI (data release) and ECB meeting on Thursday," said Kenneth Broux, strategist at Societe Generale.
"Our near-term pessimism, fueled by a view that investors fear war could spill over beyond the borders of Ukraine, is not going to fade quickly," said Stephen Englander, head of global FXG10 research at Standard Chartered.

Englander expects the euro to fall as low as 1.06 by the end of the quarter, then perhaps creep up again towards 1.14 by the end of the year if a deal is reached to end the war. However, the euro could also fall below parity (1.00) if the war spills over to regions beyond Russia-Ukraine.