EURUSD Short Up Move Before a Bigger Drop

14 thg 9, 2023

ECB Likely to Keep Interest Rates Steady for the First Time in Over a Year

• It's expected that the European Central Bank will keep key interest rates unchanged on Thursday.
  
• ECB President Christine Lagarde might hint at a potential rate hike later in the year.
  
• The Euro is gearing up for potential market turbulence based on the ECB's decision and Lagarde's press conference.
  

The European Central Bank (ECB) is widely anticipated to maintain its current interest rates, marking the first time it has done so since early 2022. This decision will come after the conclusion of its monetary policy meeting on Thursday. Additionally, the ECB will release its updated staff projections for the quarter, and ECB President Christine Lagarde will hold a press conference at 12:45 GMT.

What to Expect Regarding ECB Interest Rates and How It Could Impact EUR/USD

The European Central Bank (ECB) is currently facing a challenging decision as it deals with the increased risks of stagflation. This decision is the most significant since it began raising interest rates in July 2022. In August, the Eurozone's annual inflation rate dropped to 5.3%, a significant decrease from the 10.6% recorded in October 2022. However, core inflation remains stubbornly above 5.0%, well above the ECB's 2.0% target.

If the ECB maintains rates while adopting a hawkish tone, indicating the possibility of another rate hike by year-end, it is likely that EUR/USD will resume its upward trajectory towards 1.0850. Should the ECB announce a 25 bps rate hike, it would confirm a bullish reversal from multi-month lows. Nevertheless, the key drivers for additional gains in EUR/USD will depend on the policy guidance and President Christine Lagarde's statements. Conversely, if the ECB decides to pause rate hikes and lacks clarity on its future path, it will likely please doves and push EUR/USD back towards 1.0650.

Other Key Market Insights for today, this week

• EUR/USD is holding onto its gains near 1.0750 as the US Dollar (USD) remains weak, following mixed US Consumer Price Index (CPI) data.
  
• On Tuesday, the German ZEW Economic Sentiment improved to 11.4 in September. However, the index measuring current conditions hit a three-year low at -79.4. The ZEW Institute stated that "Financial market experts are even more pessimistic about the current economic situation in Germany than they were in August 2023."
  
• In August, the annual United States inflation gauge rose to 3.7%, surpassing the expected 3.6% increase. The CPI increased by 0.6% in August, marking its largest monthly gain in 2023, in line with market estimates. The core CPI also increased by 0.3% and 4.3%, respectively, compared to estimates of 0.2% and 4.3%.
  
• US S&P 500 futures are rising due to market optimism, as the latest US data supports the idea of a Federal Reserve (Fed) pause.
  
• The yield on the benchmark 10-year US Treasury bond is declining, approaching 3.21%.
  
• The upcoming ECB event will play a pivotal role in shaping the short-term direction of the EUR/USD pair, with attention shifting to next week's Fed policy announcements.