- ECB policymakers are afraid inflation will become entrenched in the eurozone.
- The ECB will keep raising rates in a bid to tame sky-high inflation.
- Markets are expecting a 50bps ECB rate hike in December.
Today’s EUR/USD outlook is bullish. The accounts of the Oct. 26–27 meeting showed that policymakers at the European Central Bank feared that inflation would become entrenched and that further rate increases might be necessary.
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The ECB increased rates at its meeting by 75 basis points, to 1.5%, for a total increase of 200 basis points since July, the fastest policy tightening in history.
Policymakers also put the reduction of the bank’s 9 trillion euro balance sheet on the agenda. Soon the bank will start winding down a decade’s worth of government debt purchases made to revive inflation that had been falling short of the ECB’s target.
According to the ECB, some policymakers have expressed that “monetary tightening would probably need to continue after the monetary policy stance had been normalized and moved into roughly neutral territory.”
A sizable majority of policymakers backed the 75-basis-point rate increase, but a “few” favored a smaller, 50-basis-point increase. Markets anticipate a more modest 50 basis point advance on December 15 despite the ECB’s commitment to further rate hikes. Several policymakers have argued that a slowdown after consecutive 75 basis point increases was necessary.
A potential middle ground would be to combine a smaller rate increase with a quicker start to the quantitative tightening process, which involves selling off the bonds the ECB purchased as part of its 3.3 trillion-euro asset purchase program.
EUR/USD key events today
Investors will look at the German economy’s health when the GDP is reported later today. There won’t be any significant news releases from the US, which is observing Thanksgiving Day.
EUR/USD technical outlook: Strong resistance at 1.0450
Looking at the 4-hour chart, we see the price trading above the 30-SMA and the RSI above 50, showing bulls are in control. Bulls have been stronger than bears since they took over at the 1.0226 support level. The price broke above the 30-SMA and retested the 1.0450 resistance level. It is currently trading in a tight sideways move below the resistance.
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If bulls can gather enough momentum above the 30-SMA, they might retest and take out the 1.0450 resistance. However, a break below the 30-SMA could mean retesting the 1.0226 support.
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