EUR/USD Strengthens as ECB Raises Rates as Planned

Key Takeaways

• EUR/USD trading higher after ECB’s half-percentage point rate hike to curb inflation.
• ECB and Fed raising rates at record pace to tackle high inflation.
• Market tensions making ECB data-dependent despite planned rate hike.
• Markets calmer after Credit Suisse borrows from Swiss National Bank to shore up liquidity.

Overview

The European Central Bank (ECB) raised its benchmark interest rate by 50 basis points on Thursday as part of its ongoing efforts to curb rising inflation. Despite recent market turmoil, the ECB moved forward with the planned rate hike, indicating that it is willing to take necessary steps to address inflationary pressures in the Euro Zone. As a result, the EUR/USD strengthened as investors responded to the news.

The ECB’s decision to raise interest rates at a record pace reflects its concern over inflation, which has been driven by rising energy and food prices, as well as the impact of the pandemic on supply chains. While the move is aimed at taming inflation, it also reflects the ECB’s confidence in the Euro Zone’s economic recovery. However, the bank also acknowledged the impact of recent market tensions and stated that it would remain data-dependent going forward.

Meanwhile, market turbulence caused by the collapse of Silicon Valley Bank in the US and the drop in share value of Credit Suisse had raised concerns about the potential impact on the ECB’s plans. However, the announcement that Credit Suisse would borrow up to $54 billion from the Swiss National Bank helped calm currency and other markets, leading to a relatively calm start to Friday trading. The focus now turns to the Federal Reserve’s upcoming monetary policy meeting, with markets pricing in more than an 80% likelihood of a rate hike on March 22.

Daily EUR/USD Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0760 will change the main trend to up. A move through 1.0517 will signal a resumption of the downtrend.

The minor range is 1.0760 to 1.0517. Its mid-point is 1.0639. A longer-term pivot comes in at 1.0661.

The strongest support is 1.0483. The best resistance is a long-term 50% level at 1.0775.

Daily EUR/USD Technical Forecast

Trader reaction to 1.0639 and 1.0661 is likely to determine the direction of the EUR/USD on Friday.

Bearish Scenario

A sustained move under 1.0639 will indicate the presence of sellers. If this creates enough downside momentum then look for a test of this week’s low at 1.0517, followed by the Jan. 6 main bottom at 1.0483.

Bullish Scenario

A sustained move over 1.0639 will signal the presence of buyers. This could lead to a quick test of 1.0661. This level is a potential trigger point for an acceleration to the upside with the resistance cluster at 1.0760 – 1.0775 the next target.