The Euro has been on a powerful run having gained as much as 350 pips, over the last two weeks. A huge help has been USD weakness, thanks to positive market sentiment, around covid vaccines.
Now things are going to turn up a notch with the ECB rate decision tomorrow, here is what we expect…
The European central bank is scheduled to announce monetary policy on Thursday, where they are anticipated to boost their stimulus measures, pumping more money into the markets, i.e., quantitative easing.
There is room for the European Central Bank to strike a very dovish tone at this decision. The reason is we have consecutively seen data from the Eurozone showing that inflation has negative, slipping into deflation territory, raising the chances that the European Central Bank will have to inject yet more stimulus to generate price growth which has undershot its target for over seven years.
At the last rate decision, the President of the ECB, Christine Lagarde, already positioned the markets for this action in December. This has practically been priced in that action will be taken; with that being said, rather than the usual weakness of a reaction, EUR could very well rise. If there are any dips on the initial announcement, then they are likely to be bought. Prospects about economic recovery have been so strong, thanks to the vaccine optimism.
EUR/USD bull action remains favourable
Aside from the above-detailed, EUR/USD remains supported by other key factors:
USD weakness (vaccine optimism)
The Eurozone economy, a step ahead of the U.S. given went into a second lockdown earlier.
FOMC more dovish than ECB
Price action heading into the ECB rate decision may be non-committal in terms of direction; there could be some chopping trading. EUR/USD via the weekly view formed a bullish flag structure, which has since been broken and rested.
Further moves to the upside have been observed, last week having printed the highest levels seen since April 2018. The market bulls will be eyeing a return back up to the high peak area in 2018, around the 1.2500 regions. There doesn’t appear to be too much resistance in the way the pair can achieve these heights again.
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