A state of cautious stability dominates the performance of the euro pairs, awaiting the most important event for the Eurozone this week, the monetary policy decisions of the European Central Bank. Since the start of this week's trading, the price of the EUR/USD currency pair has settled in the range of the 1.2165 support level and the 1.2217 resistance level, and it settled around the 1.2177 level at the time of writing the analysis. Today, the European Central Bank led by Lagarde will provide some key guidance regarding monetary policy in the Eurozone over the coming months. With a host of global central banks looking to withdraw the extraordinary support they have provided to their economies during the crisis. How could the ECB's own stances have important implications for the euro?
Commenting on the event and reaction, Ned Rambletein, currency analyst at TD Securities, said in the ECB Preview Brief: “All else being equal, our base case in terms of a moderate to pessimistic outcome suggests some downside risks to the EURUSD this month.” And if anything, the increasingly tight market itself offers the potential for some decent moves on the outcome of the ECB event.
FX markets will want to know if European Central Bank President Christine Lagarde and her team are considering whether it is time to scale back their exceptional support for the economy, which includes ultra-low interest rates and generous quantitative easing. If the European Central Bank says the economic recovery will be strong enough for it to consider reducing support through its quantitative easing program - known as PEPP - in the future, the euro could rise against the other major currencies.
Keeping the bank on its policy numbers could create a more opaque flavor to European trade.
The main theme of the forex markets nowadays is the speed with which global central banks are exiting their COVID-19 crisis support programs, with those looking to exit early to see their currencies better supported. The New Zealand Dollar, Canadian Dollar and Sterling were three currencies that all benefited recently from such a shift in the direction of their central banks.
In general, global inflation rates are rising sharply and there are some economists who say that central banks risk fueling this price pressure unless they start controlling the amount of “easy money” they provide through quantitative easing and ultra-low interest rates. By tightening policy (raising interest rates and ending quantitative easing) these central banks can help cool inflation.
On the other hand, a muted ECB announcement regarding the region's economic outlook and an optimistic view on inflation combined with a repeated unwavering commitment to maintaining support could in turn lead to a lower Euro. As always, the ECB event is significant as traders stick to every line of guidance and every word of ECB President Christine Lagarde.
Technical analysis of the pair: As I mentioned in the recent technical analyses of the EUR/USD pair, the return of breaching the 1.2200 resistance to strengthen the upside trend of the pair and increase purchases to move towards the resistance levels 1.2255, 1.2330 and 1.2400, respectively. These are important levels because they move the technical indicators to overbought levels, which are expected to start selling operations to take profits. On the downside, the move towards the support levels 1.2085 and 1.2000 motivates the bears to control the trend and change the current outlook.
As for today's economic calendar data: European Central Bank policy decisions, then ECB Governor Lagarde's statements. From the United States of America, the US inflation figures were announced, the consumer price index and the number of weekly jobless claims.