The European Central Bank (ECB) is set to publish its monetary policy decision on Thursday. May 5, at 12:15 GMT, followed by a press conference at 12:45 GMT. The European Central Bank is largely expected to raise interest rates for the eighth time in a row,
However market participants are divided on the extent of the increase. Nonetheless, the majority of market participants believe the ECB will slow its rate hikes. And announce a smaller 25-bps increase than the 50-bps increase announced in March. This is expected to add to the uncertainties around the July meeting. As a result, investors will be looking for new clues regarding the future rate-hike path. In the accompanying monetary policy statement and remarks from ECB President Christine Lagarde.
How might ECB rate effect the EURUSD?
The EURUSD pair is retreating from the region of the 1.1100 round figure. As the key central bank event risk approaches, despite a minor US Dollar (USD) rally from a one-week low. A 25-basis point rate hike by the ECB with no future direction or dovish tilt could weigh on the Euro. And pave the stage for significant downside for the major.
A hawkish 50 bps lift-off, albeit unlikely, may exacerbate contagion fears resulting from the US banking crisis. This, in turn, will fuel speculation about an earlier ECB rate cut, attracting new sellers across the shared currency, warranting some caution for bullish traders before positioning for additional gains.
EURUSD faces initial resistance at 1.1100 (psychological level, static level, mid-point of the ascending regression channel. Once the pair breaks through that level and confirms it as support, it may move on to 1.1160 (static level from March 2022) and 1.1200 (psychological level, static level).”
“On the downside, 1.1050 (former resistance, static level) aligns as interim support before 1.1025 (lower-limit of ascending regression channel, 50-period Simple Moving Average (SMA)) and 1.1000 (100-period SMA; psychological level.
