Oct 27, 2022
VOT Research Desk
Next Thursday, when the European Central Bank (ECB) announces its monetary policy decision, President Christine Lagarde and company are anticipated to finally give in to pressure to accelerate quantitative tightening.
The European Central Bank will need to take the bull by the horns and proceed with another 75 bps given that the Consumer Price Index (CPI) on the Old Continent keeps breaking records.
Currently, the Main Refinancing Rate is 1.25%, while the Deposit Facility Rate is 0.75%.Every ECB meeting this year has been interpreted as dovish by speculative interest, ending President Lagarde’s cautious approach to monetary policy.
In fact, the ECB began the tightening cycle in July when it increased its key benchmark rates by 50 basis points.
This was followed by another increase of 75 basis points in September. Initially backed by European officials who noted that significant rate increases would not be the norm in the near future, Lagarde had warned that it may be an exception at the time.
EUR/USD Analysis Report
Amidst a decline in the value of the US dollar, the EUR/USD pair is volatile prior to the release. In contrast to the ECB, the US Federal Reserve anticipates decreasing the pace of tightening after raising rates by another 75 basis points in November.
The pair currently trades over parity after dropping to a multi-decade low of 0.9535 earlier in October.
If the ECB announces a moderate rate hike of 50 basis points, the euro would probably once again fall below the 1.0000 mark, with a key support level at the daily descendant trend line that originates from the year’s high of 1.1494 and is currently in the 0.9940 price range.
The pair’s temporary bottom should be confirmed by a pullback to the region and a swift recovery that suggests further gains are on the horizon.
The risk for EUR/USD will also tilt to the downside if the ECB really triggers the tightening by 75 basis points but states that it will decrease the pace of tightening moving forward.
Last but not least, the central bank must raise rates by 75 basis points and send a hawkish signal to give the pair a further boost that might push it over 1.0100/20 in the near future.
The monthly high for September is 1.0197, which is unlikely to be reached after the ECB. The termination of the bearish trend would be further supported by an extension beyond it in the following days.
