As expected, the ECB raised the interest rate by 0.25% to 1.25%. This was widely expected by the markets. EUR/USD was flirting with the critical 1.4282 line towards the release. It shakes around the important line, and remains under it, in anticipation for the accompanying press conference.
Update 12:10: EUR/USD is now rising in choppy trading. It rose to 1.4315 before falling back to 1.4295. So, it’s currently above resistance.
The European Central Bank raised the Minimum Bid Rate for the Euro-zone. This is the first rate hike since the financial crisis. The move follows a rise in inflation that stands at an annual pace of 2.6% according to the most recent estimations. The target CPI is 2%.
This will help in cooling down Germany’s strong economy and curb inflation, but it will also shed the hopes of growth in the debt stricken countries – Greece, Ireland and Portugal, which just announced that it needs help.
In the press conference, Jean-Claude Trichet, the president of the ECB, is expected to lay out the plans for the future – more rate hikes or a “wait and see policy”. We’re down to two scenarios from the ECB Preview. It could still be “buy the rumor, sell the fact”.
Levels above are 1.4350 and 1.4450. Below, under 1.4282, we find 1.4250 (minor) and 1.4160. For more levels, see the EUR USD Forecast.