ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 12:15 GMT, which will be followed by the post-meeting press conference at 12:45 GMT. The ECB is all but certain to lift interest rates for the second time in as many meetings to curb stubbornly high inflation, though investors are split over the size of the rate hike. Nevertheless, the current market pricing indicates a greater chance of a supersized 75 bps increment amid a record high inflation in the Eurozone.

Analysts at ING offer a brief preview of the key central bank event risk and explain: “We expect the ECB to ‘only’ hike by 50 bps. This would be a compromise, keeping the door open for further rate hikes. A 75 bps rise looks like one bridge too far for the doves but cannot be excluded. Further down the road, we can see the ECB hiking again at the October meeting but have difficulties seeing the ECB continue hiking when the eurozone economy is hit by a winter recession. Hiking into a recession is one thing, hiking throughout a recession is another.”

How could it affect EURUSD?

Expectations for more aggressive tightening might have already set the stage for disappointment, especially if the ECB decides to opt for a gradual approach toward raising interest rates. Hence, the focus will be on the post-meeting press conference, where comments by ECB President Christine Lagarde will be scrutinized for the near-term policy outlook. This will play a key role in influencing the shared currency and provide some meaningful impetus to the EUR/USD pair.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair: “The near-term technical picture points to a bullish tilt with the Relative Strength Index (RSI) indicator on the four-hour chart holding comfortably above 50. Additionally, EUR/USD closed the last four four-hour candles above the 20-period and 50-period SMAs. Finally, the pair trades above the 10-day-old descending trendline.

Eren also outlined important technical levels to trade the EURUSD pair: “On the upside, 1.0000 (100-period SMA, psychological level) forms key resistance. In case this level is confirmed as support on a hawkish ECB outlook, the pair could target 1.0060 (static level) and 1.0100 (psychological level, 200-period SMA).”

“Supports are located at 0.9970 (50-period SMA), 0.9940 (broken trend line, 20-period SMA) and 0.9900 (psychological level),” Eren adds further.

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About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.