ECB monetary policy decision – Overview
The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 12:45 GMT, which will be followed by the post-meeting press conference at 13:30 GMT. The war in Ukraine has raised uncertainty about the economic outlook for the eurozone, which might force the ECB to maintain maximum flexibility and adopt a wait-and-see approach.
That said, the continuous surge in inflation to record highs supports the case for the central bank to proceed with its plans for policy normalization. The ECB, however, could refrain from committing any timeline on interest rate hikes and end date for the APP program. Hence, the focus will be on ECB President Christine Lagarde's remarks at the post-meeting press conference.
Analysts at Commerzbank offered a brief preview of the upcoming ECB meeting and explained: “Russia's war against Ukraine is causing more and more investors to doubt that the ECB will start the gradual normalization of monetary policy. However, we still think this is the more likely scenario due to the record-high inflation rate. That said, the ECB Council is likely to keep a back door open to react to short-term turmoil on the financial markets and an energy crisis that cannot be ruled out.”
How could it affect EUR/USD?
Ahead of the key event, concerns about the worsening situation in Ukraine led to a turnaround in the global risk sentiment and drove some haven flows towards the US dollar. This, in turn, failed to assist the EUR/USD pair to capitalize on the previous day's strong positive move, instead attracted fresh sellers. A dovish-sounding ECB would be enough to exert additional pressure on the shared currency and pave the way for the resumption of the pair's bearish trend witnessed over the past one month or so. Conversely, a status-quo might do little to provide any meaningful impetus and shift the market focus back towards developments surrounding the Russia-Ukraine saga.
As Yohay Elam, Analyst at FXStreet writes: “With the current focus on the war, it seems that only a broad ceasefire could significantly boost the euro. Even if Lagarde tries to sound optimistic and boosts the euro during her press conference, the common currency could resume its downtrend afterward.”
Meanwhile, Eren Sengezer, Editor at FXStreet, outlined important technical levels to trade the major: “EUR/USD faces the first resistance at the 1.1090/1.1100 area (Fibonacci 61.8% retracement of the latest downtrend, psychological level). In case the pair rises above that region and starts using it as support, the next bullish target aligns at 1.1160 (100-period SMA on the four-hour chart, static level).”
“On the downside, supports ate located at 1.1040 (Fibonacci 50% retracement, 50-period SMA), 1.1000 (psychological level, Fibonacci 38.2% retracement) and 1.0940 (20-period SMA, Fibonacci 23.6% retracement),” Eren added further.
Key Notes
• ECB Preview: More pain for the euro as doves may strike back amid Ukraine crisis, stagflation risks
• ECB Previews: Lagarde to lash the euro down as cannons are heard and stagflation looms
• EUR/USD Forecast: Risk mood to drive euro's action on ECB day
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.