EUR/USD : What’s next after the ECB’s 50 basis point hike

European central bank and President Lagarde surprised the market but the euro reaped only temporary gains.

In a European economy that is in doubt and facing significant and fundamental problems an aggressive move of 50 basis points increase in key interest rates is definitely a decision with some risk.

Today's announcement of the shrinking private sector in Germany confirms these concerns and has put the European currency in an environment of new pressures.

The clouds of the possibility of stagflation in the European economy remain with the risk that the European Central Bank's attempt to control high inflation could endanger the development path of the European economy.

In this environment, the European common currency made some gains in the wake of the announcement but failed to break the critical resistance levels of 1,0280-1.0300.

International stock markets are showing signs of fatigue after recent bullish sessions leading to re-positions for the dollar as a safe haven currency.

Although the decisions of the European Central Bank surprised us and were not in accordance with our basic scenario, the difficulty of the Euro to maintain the gains was quite expected as we noted in yesterday's report.

Despite a strong upward reaction of almost 300 basis points in recent days which  driving the pair from the 0,9950 levels to 1.03  threshold  , the momentum seems to be returning to the downside .

We would prefer to maintain a neutral position for the duration of the day awaiting lower levels for a possible repositioning in favor to euro .