It is expected that the US central bank would raise the interest rate by a lesser amount than in previous meetings, in light of a noticeable decline in US inflation from its highest level in 40 years. Therefore, it was a good opportunity for the EUR/USD pair to complete the current upward rebound path, with gains that reached the 1.0695 resistance level, the highest for the pair. The trend is expected for more gains, until the market reacts to the monetary policy decisions of the European Central Bank today.
The European Central Bank is widely expected to slow the pace of interest rate hikes to 50 basis points on Thursday, benefiting from peers as inflation eased slightly in many countries on the back of modest easing in energy prices. However, recent economic data and surveys as well as statements by ECB policy makers seem to indicate otherwise as they point to above-target inflation in the coming months.
The central bank of the 19-country currency bloc is expected to announce its interest rate decision at 08:15 AM ET Thursday when it is widely expected to raise rates by 50 basis points. The main refinancing rate is currently 2.00 percent. The deposit facility rate is at a 13-year high of 1.50% and the marginal lending rate is 2.25%.
The bank's board, led by Christine Lagarde, the European Central Bank's president, raised interest rates by 200 basis points this year, the fastest pace of monetary tightening in the central bank's history, to rein in hyperinflation. The ECB President is scheduled to hold his usual post-decision press conference at 08:45 AM ET. The first rate hike from the ECB this year was a 50 basis point increase in July, which was also the first since the same month in 2011. This was followed by two jumbo rate hikes of 75 basis points each, in September and October. The central bank is also expected to announce plans to reduce its bond holdings, but refrains from disclosing any concrete measures.
The recent decline in inflation in the Eurozone and the improvement in sentiment indicators have fueled expectations that the European Central Bank is likely to turn somewhat dovish this time around. However, indicators for the manufacturing and services sector are giving increasing signs of an economy slipping into recession. Lagarde is also due to release the latest set of ECB staff macroeconomic forecasts on Thursday that forecast inflation will remain above the bank's 2 percent target through 2024, returning to the target only in 2025. However, an increase of 75 percent A basis point is not said some economists.
Technical analysis of the euro pair against the dollar today:
- The price of the EUR/USD currency pair formed lower tops and higher bottoms within a symmetrical triangle pattern in its short-term time frame.
- It seems that the breach will happen soon.
- The fixation is getting tighter, as the pair approaches the top of the triangle around 1.0575.
- A breakout to the upside could lead to a rally that is the same height as the triangle pattern or around 150 pips.
- Breaching the support level around 1.0525 could lead to a decline of the same size.
Technical indicators are giving mixed signals at the moment. The 100 SMA is above the 200 SMA to indicate that the general trend is still up, and these indicators line up with the bottom of the triangle adding to their strength as a floor. However, the stochastic is already in an overbought area to indicate exhaustion among the buyers, so a shift lower would mean a return of selling pressure. The RSI has some room to run before reaching the overbought territory, so the bullish momentum may continue for a while longer.
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