• The ECB has left rates unchanged, but signaled higher ones in the next meetings. 
  • An open door to a 50 bps hike in September is keeping the euro bid. 
  • Capping July's hike at 25 bps for July and slashing growth forecasts will likely down the euro.

"It is tough making predictions, especially about the future" – these famous words by Yogi Berra may sound laughable, but are the gist of my bearish bias against the euro. The European Central Bank has signaled its intent to raise rates by 25 bps in July, but left the door open to a 50 bps move in September. 

After the initial whipsaw, EUR/USD is some 20 pips above pre-announcement levels due to that promise for the more distant future. This seems wrong. The open door to a move in September seems to me like a token gesture to the hawks, countering the otherwise dovish decision. 

Inflation has topped 8%, and instead of acting immediately, the ECB is only promising to move in six weeks time ~ and by the minimal amount of 25 bps. That has come despite a major upgrade to inflation forecasts to 6.8%.

Moreover, the bank slashed its growth forecast from over 7% to below 3% and pledge to act, if needed, to buy bonds, diluting its pledge to end its bond-buying scheme. 

All in all, the ECB is hesitant to act. It is only indicating a minimal rate hike next time and making promises it could find hard to fulfill later on. Who knows what how rising energy prices and Russia's war of attrition weighs on the economy. 

Europeans are rushing to enjoy the reopening and taking summer vacations, but the money may run out by the end fo the summer – and the ECB would hesitate to act. 

In the shorter term, investors seem to waiting for Lagarde, and it is hard to see her convey a determined, hawkish message 0 especially not after this statement, which is more dovish than hawkish. 

Current euro strength seems like a selling opportunity.

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