- ECB raises interest rates by 50 basis points, despite banking sector worries.
- Euro drops modestly, yields rebound, and DXY retreats amid improvement in market sentiment.
- EUR/USD limited above 1.0600, but far from 1.0500.
The EUR/USD rose modestly on Thursday on what turned out to be an unexpectedly quiet day. The reaction in the forex market to the European Central Bank (ECB) decision was notably limited, including EUR crosses. US stocks rose on Thursday and weighed on the US Dollar. Ahead of the Asian session, markets are consolidating, still surrounded by uncertainty and before Federal Reserve’s week.
The ECB raised its key interest rates by 50 bps in line with consensus. The reaction across financial markets shows that it came as no surprise and that the expectations of a smaller hike were small. The statement was not dovish nor hawkish. The central bank clarified that inflation remains in the spotlight. The first sentence of the monetary policy statement reads, “inflation is projected to remain too high for too long,” and the second paragraph says the ECB is “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.” An equilibrium between inflation (mentioned first) and financial tensions.
The ECB dropped the forward guidance (also expected), offering no clues for the May policy decision. Analysts continue to see more rate hikes from the ECB. However, it will depend on how the current tensions in the banking sector develop. On Friday, Eurostat will release the final reading of Eurozone consumer inflation, which should be a non-event.
The DXY weakened amid an improvement in market sentiment. If systemic fears continue to ease, the Greenback could suffer more. Data released on Thursday showed the Philly Fed Manufacturing Index improved in March to -23.2 from -24.3, below the -14.5 of market consensus; Initial Jobless Claims pulled back after surging last week; Housing Starts and Building Permits rebounded unexpectedly to 1.45 and 1.52 million, respectively, showing positive signs from the housing sector after months. On Friday, the Fed will release Industrial Production data and the University of Michigan its Consumer Sentiment report.
EUR/USD short-term technical outlook
The daily charts show the EUR/USD rebounded from a critical support (Fibonacci retracement, a crucial horizontal support band and the 100-day Simple Moving Average (SMA) near the 1.0500 area. The upside momentum was not enough to regain the 20-day SMA that stands at 1.0635. From a wider perspective, the pair continues to move sideways. A break under 1.0500 could lead to a bearish acceleration.
Ahead of the Asian session, the 4-hour chart shows EUR/USD steady around 1.0615, below the 20-period SMA. Technical indicators are flat, affected by many hours of consolidation. Above 1.0635, the Euro could go for 1.0660 and then 1.0700. On the contrary, under 1.0580, another run toward monthly lows seems likely.
View Live Chart for the EUR/USD
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