The European Central Bank (ECB) appeared to be more accommodating than other central banks, especially the Fed and the BoE. Will the ECB stick to the rhetoric of transitory inflation or will the central bank seek to slow down its asset purchase program?
When will the European Central Bank announce its decision on its interest rates?
The European Central Bank will announce its decision on its interest rates on Thursday at 7:45 (EST).
What to expect?
The fourth wave of COVID, the rapid spread of the Omicron variant and partial lockdown restrictions complicate the outlook for the ECB, ahead of what was to be a key meeting.
Recent economic data points to a slowing in the momentum of the economic recovery, as rising COVID cases are expected to add even more pressure. At the same time, inflation continues to rise and may not be as transient as the central bank originally suspected. The ECB has seemed more accommodating than most central banks, but rising inflation and COVID are putting pressure on the central bank.
New projections, no major changes
The European Central Bank is expected to provide a new set of projections, although no significant changes are expected. In September, the GDP growth projection was 5% for 2021 and 4.6% for 2022. Inflation was forecast at 2.2% and 1.7%. The ECB has so far seemed confident that inflation will fall below its target level of 2% despite a rate of 4.9% in November, but will this confidence continue.
Reduce asset purchases in 2022?
Discussions at the European Central Bank meeting may well focus on the pandemic emergency procurement program and its proposed end in March 2022. Some reports suggest that the ECB may consider expanding the pandemic program. asset purchase (APP), a more flexible asset purchase program because the PEPP is off the hook, to avoid a cliff edge end. However, given the upsurge in COVID cases and concerns that partial lockdown restrictions could hinder the path to economic recovery, there is a growing chance that the ECB will kick the box. .
Omicron variant obscures outlook
At this stage, the ECB will want to keep all options open, so the December meeting promises to be rather uncertain. While some decrease in asset purchases in 2022 looks like a done deal, that’s what we’ll likely get from the ECB. The central bank is likely to want to see how Omicron and any necessary restrictions impact the economy before it reveals plans for 2022 too much.
Compared to other central banks such as the Fed and the BoE, the ECB seems happy to sit on the sidelines. The divergence in monetary policies could be a key factor in the downfall of the EUR / USD pair.
What’s next in forex for the EUR / USD pair?
The price of the pair EUR/USD has formed on a symmetrical triangle pattern on the daily chart, following a bearish move – this indicates a bearish continuation pattern.
Therefore, we might expect the triangle breakout to be lower, to test support at 1.1235 and 11.85 year low to date. The RSI in bearish territory also supports the idea of further losses.
Resistance can be seen at 1.1375 the November 30 high before the SMA-50 moving average at 1.1465.
By Fionna Cincotta, Forex.com » Official site
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