The ECB slightly less accommodating due to the rise in inflation
Even though Christine Lagarde says she doesn’t see a rate hike in 2022 under current conditions, but that could change!
At the European Central Bank’s December meeting, the ECB said it will let the Pandemic Emergency Pandemic Program (PEPP) expire at the end of March 2022, as scheduled, and buy bonds from one that she already had not significantly lower in the 1st quarter. However, the ECB will also extend the PEPP reinvestment time horizon until the end of 2024! Additionally, due to the uncertain nature of the Omicron virus and due to short-term inflation (especially due to energy), Christine Lagarde noted that flexibility is important for the mechanism of transmission. Therefore, after PEPP expires, the Central Bank will use this flexibility to adapt the current asset purchase program (APP) and purchase 40 billion euros in bonds in the 2nd quarter and 30 billion euros of obligations in Q3, before returning to the level of maintenance 20 billion euros in progress.
ECB members have also adjusted their growth and inflation forecasts. The committee forecasts inflation above its 2% target for most of 2022, ending at 2.3% for the year. He sees inflation of 1.8% for 2023 and 2024. In addition, the committee now sees growth in 2022 at 4.2%, 2.9% in 2023 and 1.6% in 2024.
EUR / USD has been trading lower on the forex in a long-term descending channel since May 26. The pair stopped at its most recent low of 1.1186 on November 26, posting a false breakout below the channel. The pair EUR/USD then bounced back into the range and consolidates into a symmetrical triangle. Often times when the price fails to maintain the breakout on one side of a channel, it will move to the other side of the channel. The target for the upper trendline of the channel is near 1.1490.
Daily EUR / USD Chart
If price is to get closer to the target, it must first break through significant resistance. So far, price has not been able to get through horizontal resistance and the 38.2% Fibonacci retracement from October 28 highs to November 24 lows near 1.1380. Above that, resistance crosses at the 50% retracement level from the same period at 1.1438, which confluences with the 50 day moving average at 1.1443. The first support is on the lower trendline of the short term triangle near 1.1262 ahead of yesterday’s low at 1.1222. If the EUR / USD crosses below it may run to the November 24 low at 1.1144 and the long term horizontal support at 1.1020.
EUR / USD chart 4 hours
With the ECB forecasting the end of their bond purchase program at the end of Q3 2022, it is now “a little less favorable to the status quo”. And while Christine Lagarde says she won’t see a rate hike in 2022 under current conditions, that could change. Watch to see how strong-than-expected inflation continues through Q1 2022, and if so, keep an eye on the EUR / USD pair to see if it moves with it!
By Joe Perry, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone relies on such information.
