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EUR/USD Rate Rally Vulnerable to ECB Verbal Intervention

EUR/USD Rate Rally Vulnerable to ECB Verbal Intervention

2018-01-25 07:00:00
David Song, Strategist
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- European Central Bank (ECB) to Retain Current Policy as QE Narrows to EUR 30B/Month.

- Will President Mario Draghi & Co. Try to Talk Down the Euro Exchange Rate?

Trading the News: European Central Bank (ECB) Interest Rate Decision

ECB Interest Rate Decision

The European Central Bank’s (ECB) first interest rate decision for 2018 may spark a limited reaction as the Governing Council is expected to retain the zero-interest rate policy (ZIRP), but President Mario Draghi and Co. may attempt to talk down the Euro as the ongoing appreciation in the exchange rate impedes on the outlook for inflation.

The Governing Council may continue to prepare European households and businesses for a less accommodative stance as the central bank starts to wind down the quantitative easing (QE) program, but the ECB may keep the door open to further support the monetary union as ‘the projected upward path for inflation was subject to considerable uncertainty, with as yet insufficient signs of self-sustaining upward pressures in underlying inflation.

In turn, a growing number of ECB officials may warn of ‘sudden movements which don’t reflect changes in fundamentals,’ and President Draghi & Co may merely attempt to buy more time as price growth continues to run below target. New to trading? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Impact that the ECB rate decision has had on EUR/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC

2017

12/14/2017 12:45:00 GMT

0.00%

0.00%

+7

-52

December 2017 European Central Bank (ECB) Interest Rate Decision

EUR/USD 5-Minute Chart

EUR/USD 5-Minute Chart

The European Central Bank (ECB) stuck to the zero-interest rate policy (ZIRP) in December, with the Governing Council on course to wind down its quantitative easing (QE) program as the central bank will ‘continue to make net asset purchases under the asset purchase programme (APP), at a monthly pace of €30 billion, until the end of September 2018, or beyond, if necessary.’

Even though the ‘latest data and survey results point to solid and broad-based growth momentum,’ the ECB appears to be in no rush to move away from its easing-cycle as ‘domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend.’ The cautious rhetoric dragged on the Euro, with EUR/USD slipping below the 1.1800 handle to end the day at 1.1778. For additional resources, download and review the FREE DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

EUR/USD Daily Chart

Want more insight? Sign up & join DailyFX Currency Strategist Christopher Vecchio LIVEto cover the ECB rate decision.

  • Broader outlook for EUR/USD remains constructive as both price and the Relative Strength Index (RSI) extend the bullish formations carried over from late last year.
  • Topside targets remain on the radar for the days ahead as the pair breaks out of a near-term range, while the momentum indicator climbs back above 70 and pushes into overbought territory.
  • Break/close above the 1.2430 (50% expansion) hurdle raises the risk for a move towards 1.2640 (61.8% expansion) to 1.2650 (38.2% retracement), with the next region of interest coming in around 1.2860 (50% expansion) to 1.2930 (78.6% expansion).

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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