ECB must prepare for an era of higher inflation volatility 💵

In her speech today, Christine Lagarde stressed the need for the ECB to prepare for the coming era of greater inflation volatility. Currently, according to Lagarde, we are operating in an era of magnified risks and uncertainty surrounding the conduct of monetary policy. Hence, despite the increasingly strong conviction among markets that we are exiting the inflationary environment (which is partly reinforced by increasingly bold interest rate cuts by central banks), Lagarde stressed that one of the central banks' goals now should be to keep a close eye on changes in the economy and prepare for potential further challenges to monetary policy. 

Lagarde cited changing lifestyles, consumer expectations, technological developments, as well as the global fragmentation of the economy among the factors contributing to the changing economic environment we currently face. 

Moreover, the ECB president pointed to a series of supply shocks that have hit the economy over the past few years: a pandemic, the war in Ukraine and the energy crisis. According to the banker, such future supply shocks are now increasingly expected. 

For investors, an important piece of news will be the presentation of the results of the ECB's strategy review, which is due to be published in the second half of 2025. While the 2% inflation target remains a non-negotiable factor, the results of the review may still have far-reaching implications for the future of ECB policy. One change may be in the way growth forecasts are carried out and the central bank's way of communication.

In the 1H interval, we do not see clear signals on the EURUSD quotations under the influence of Lagarde's speech. The currency pair is struggling to break through the support set by the local peaks from the previous week in the area of 1.1145. If the pair breaks through the support both the market geometry and the support line from the consolidation from the beginning of the week point to a potential range of declines in the area of 1.11168. Above the support could be a signal to return to today's peaks in the area of the zone 1.1158-1.11678. Source: xStation