Fundamental analysis

Euro halts rally ahead of ECB meeting

An important event will take place today, that is, the ECB meeting on monetary policy, from which the market expects another increase in the discount rate by 0.75% to 1.50%. Earlier, the central bank announced the continuation of aggressive rate hikes, prompting a noticeable rise of euro. There is also growing expectations that the Fed, after pushing the rate up by 0.75% on November, will start to slow down the pace of rate growth as early as December.

Other topics that may be discussed during the ECB meeting are the government bond portfolio and the TLTRO program. If the members decide on another aggressive rate hike and a vigorous reduction in the incentive measures, euro will most certainly rise above parity. But if the bank’s position turns out to be unclear, euro will fall below parity.

To continue the growth of euro, several things are needed. The first is the real readiness of the ECB to curtail all measures to help the European economy amid a recession in the region, which was aggravated by the military conflict in Ukraine. But it will be extremely difficult for it to do this since the measures will only exacerbate the fall of the local economy and the growth of social tension in the region. The second is a promising radical reduction in the aggressive policy of the Fed regarding further interest rate hikes. But here, too, there is no clear-cut solution yet. Therefore, pressure from a downward correction in Treasury yields will hold back growth, albeit just locally.

Forecasts for today:

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EUR/USD

The pair is trading above 1.0050 ahead of the ECB’s monetary policy meeting. The recent recovery of the upcoming increase in the discount rate, as well as the possible indecision of the ECB in the issue of the complete elimination of measures to support the European economy, may put strong pressure on the pair, which may lead to fall to 1.0000, but only after overcoming the level of 1.0050.

GBP/USD

The pair shows the likelihood of a corrective decline. From a technical point of view, the trend remains bearish as the price is below the level of 1.1730. If EUR/USD goes down, GBP/USD will also fall, possibly to below 1.1580, then to 1.1480.

The material has been provided by InstaForex Company – www.instaforex.com


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