ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 11:45 GMT, which will be followed by the post-meeting press conference at 12:30 GMT.

The ECB remains one of the more dovish major central banks and maintained its patient approach despite rising inflationary pressures. In fact, the headline Eurozone CPI accelerated to a 13-year high level of 3.4% in September. That said, core inflation remained below the 2% target and might allow the ECB to stick to the script that the post-lockdown inflation is transitory and leave its monetary policy settings unchanged.

The central bank would also prefer to wait for new economic projections at the December meeting before making any announcement. That said, investors will still look for clues about a potential withdrawal of monetary accommodation from the accompanying monetary policy statement and ECB President Christine Lagarde’s remarks at the post-meeting press conference.

According to Valeria Bednarik, Chief Analyst at FXStreet: “Market participants are hoping President Christine Lagarde paves the way for a December announcement, as policymakers cannot keep ignoring mounting inflationary pressures. Headline inflation in the EU has printed at 3.4% YoY in September, a 13-year high, while the German Consumer Price Index in the same period rose by 4.1%, the highest in almost three decades.”

How could it affect EUR/USD?

The EUR/USD pair was seen hovering around the 1.1600 mark heading into the key event risk. A dovish message should prompt aggressive selling around the shared currency and set the stage for the resumption of the pair’s recent downward trajectory from early September swing highs. Conversely, signs that the ECB is turning hawkish – though seems unlikely – should be enough to provide a strong boost to the major. Nevertheless, the ECB is more likely to infuse some volatility around the euro crosses.

Meanwhile, Valeria offered a brief technical outlook and outlined important technical levels to trade the EUR/USD pair: “From a technical point of view, the bearish trend is firmly in place, which means that a dovish stance from the ECB will likely have a larger impact on the pair. If policymakers retain their conservative stance without giving any hint of tapering, the pair could pierce the year low and extend its slump towards the 1.1470 price zone, a long-term static critical area.”

“In the unlikely case that Lagarde & Co hint at a tighter monetary policy, the pair could reach 1.1670 and later extend its rally towards the 1.1740 price zone. Selling interest will likely be strong around the latter, preventing EUR/USD from advancing further,” Valerian added further.

Key Notes

  •  European Central Bank Preview: Finally, some action, but no hopes for the EUR

  •  European Central Bank Preview: Three reasons why Lagarde is set to lower the euro

  •  ECB Preview: Forecasts from nine major banks, a dovish message of ongoing support

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.

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