EUR/USD Forecast: Can euro stabilize above parity after ECB announcements?
- EUR/USD has gone into a consolidation phase following Wednesday's rebound.
- ECB is expected to hike its policy rate by 75 basis points.
- Near-term technical outlook points to a bullish tilt.
EUR/USD has gone into a consolidation phase below parity early Thursday after having registered strong recovery gains on Wednesday. Ahead of the European Central Bank's (ECB) highly-anticipated monetary policy announcements, the near-term technical outlook suggests that sellers remain on the sidelines for the time being.
The ECB is expected to raise rates by 75 basis points (bps). However, some economists think that the bank could hike rates by 50 bps instead given the uncertainties surrounding the outlook.
Investors grow increasingly concerned about the European economy tipping into a long-lasting recession. The deepening energy crisis with Russia deliberately cutting gas supplies to Europe could continue to fuel inflation and cause households' disposable income to diminish further.
In case the ECB hikes rates by 75 bps, the initial reaction could help the shared currency find demand. However, the positive impact of such a policy move on the euro could remain short-lived if the bank projects a recession in later 2022 or early 2023. That would likely suggest a cautious approach to policy normalization moving forward and not allow EUR/USD to gather bullish momentum.
On the other hand, a 50 bps rate hike should trigger a euro selloff and force EUR/USD to push lower toward new multi-decade lows.
The bank's inflation projections and ECB President Christine Lagarde on the energy crisis will also be scrutinized by investors.
ECB Preview: Between Putin's rock and hard inflationary place, the deck is stacked against the euro.
EUR/USD Technical Analysis
The near-term technical picture points to a bullish tilt with the Relative Strength Index (RSI) indicator on the four-hour chart holding comfortably above 50. Additionally, EUR/USD closed the last four four-hour candles above the 20-period and 50-period SMAs. Finally, the pair trades above the 10-day-old descending trendline.
On the upside, 1.0000 (100-period SMA, psychological level) forms key resistance. In case this level is confirmed as support on a hawkish ECB outlook, the pair could target 1.0060 (static level) and 1.0100 (psychological level, 200-period SMA).
Supports are located at 0.9970 (50-period SMA), 0.9940 (broken trend line, 20-period SMA) and 0.9900 (psychological level).
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
