EUR/USD Prices Forecast: Flat Ahead of ECB Decision to Hike or Pause

Highlights

• EUR/USD trading flat pre-ECB decision.
• ECB faces dilemma: raise rates or pause?
• Euro’s future tied to ECB’s inflation outlook.

Euro Holds Steady Ahead of ECB Decision

EUR/USD traders are keeping a close watch on the European Central Bank’s (ECB) impending monetary policy statement and interest rate decision on Thursday, with the Euro trading nearly flat against the U.S. Dollar. This comes as uncertainty prevails regarding whether the ECB will raise rates amidst growing concerns about inflation. The U.S. inflation data released on Wednesday failed to sway expectations of a Federal Reserve pause next week.

Early Cautious Stance

As of 09:00 GMT, the EUR/USD pair is trading at 1.0734, marking a slight increase of 0.04% or 0.004 points. The Euro has managed to recover marginally from a three-month low against the Dollar. However, it remains in a cautious stance as traders await the ECB’s decision, with the looming meeting acting as a cap on significant moves.

ECB Dilemma: Hike or Pause?

Market expectations for the ECB’s meeting are divided between a rate pause and a 25 basis point rate increase. Notably, there’s a leaning towards a hike, partly driven by reports suggesting that the ECB expects inflation to stay above 3% next year, exceeding the 2% target.

Euro’s Fate Tied to ECB’s Inflation View

The Euro’s future trajectory hinges on the ECB’s updated economic forecasts, especially regarding inflation. The central bank faces a tough decision as it grapples with persistent high inflation, currently above 5%, against a backdrop of slowing economic growth.

A Last Hike or a Pause?

Analysts and investors had anticipated a rate pause, but the mood has shifted due to the prospect of higher inflation in the ECB’s forecasts. Currently, money markets assign a 63% probability of a rate hike, which would be the last in a cycle initiated in July 2022.

Risks and Economic Impact

The brisk tightening cycle undertaken by the ECB has started affecting the Eurozone economy, particularly in manufacturing and lending to businesses and households. Germany, the largest Eurozone economy, is showing signs of heading into recession. The ECB is also expected to lower its growth projections, raising concerns about the need for further tightening.

Short-Term Outlook

In summary, the Euro maintains a cautious stance as traders await the ECB’s rate decision, which could either mark the end of a tightening cycle or continue it amidst inflationary pressures. Economic uncertainties persist, with implications for both the Euro and the Eurozone’s economic outlook.

Technical Analysis

The EUR/USD market currently stands at 1.0732, slightly below the 4-hour close of 1.0734. The 200-4H moving average is 1.0865, indicating the price is below this long-term average. The 50-4H moving average at 1.0736 aligns closely with the current price. The 14-4H RSI reading of 47.97 suggests neutral momentum.

Major support rests at 1.0671 to 1.0638, with the main resistance at 1.0766 to 1.0772. Overall, the market sentiment appears neutral, with price proximity to key moving averages and RSI near 50, suggesting indecision. Further analysis is advised for a clearer trend. Traders expect more clarity after the release of the ECB statements. Bullish news could trigger a breakout over 1.0772.