Traders Brace For ECB

Today’s ECB meeting holds the potential to create plenty of fireworks. On the back of the Fed signalling a pause along with yesterday’s .25% hike, the ECB is expected to push ahead with its own .25% hike. However, the bank is expected to retain a more hawkish tone than the Fed with the market currently pricing in two further rate hikes up to October. Given that market pricing for the Fed is pointing to rate cuts over the same period, the divergence in monetary policy expectations should keep EURUSD well supported going forward.

Challenge For Bulls 

The issue for EUR bulls, however, is that EUR upside positioning is quite stretched and a hawkish meeting is well signalled. With that in mind, there is room for some disappointment in EUR today unless we get a hawkish surprise from the ECB today. There is an outside chance that the bank opts for a more aggressive hike today. Given that the ECB started tightening later than others and with inflation still holding stubbornly around the 7% mark, the bank might opt to push harder instead of waiting further. With data this week showing that EU unemployment fell to record lows last month, there is a case for such a move.

Guidance in Focus 

However, if the bank opts for a .25% hike then the focus will come down to the guidance issued. Should the ECB retain a firmly hawkish tone pointing to the need for more hikes and a willingness to be more aggressive if necessary, this should help keep EURUSD well bid. Any less than this, however, might see EUR struggle a little near-term on profit taking.

Technical Views

EURUSD

The rally off the March lows has stalled for now into a test of the 1.1126 level. While price is still within a large bull channel, keeping focus on further upside, downside risks are growing with momentum studies weakening. Should we correct lower from here, 1.0785 will be the next support to note along with the bull channel lows.