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Euro Edges Higher after ECB Meeting

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Fundamental analysis of Forex market

The euro is showing little movement after the ECB policy meeting. Currently, EUR/USD is trading at 1.1634, up 0.27% on the day.

ECB policy meeting a non-event

Many central banks are currently in a tightening cycle, notably the Federal Reserve and the Bank of England. Two notable exceptions are the ECB and the Bank of Japan, which continue to maintain an accommodative stance. Today’s ECB meeting was a non-event for the markets and the euro showed limited reaction.

As expected, the ECB did not make any announcements with regard to the future of the Pandemic Emergency Purchase Programme (PEPP), which is set to expire in March 2022. The December meeting may provide some insights as to what policy makers plan for the programme, and any hints that the programme will be wound up ahead of schedule would be bullish for the euro.

In a follow-up press conference, ECB President Christine Lagarde acknowledged that the current phase of high inflation would last longer than expected. This idea should sound very familiar, as Fed Chair Powell and other heads of major central banks have grudgingly said that inflation levels will persist longer than they had previously anticipated.

This is not really news for the markets, as inflation is pointing upwards. Eurozone CPI hit 3.4% in September and is expected to rise to 3.7% in October, which would mark a 13-year high. In Germany, inflation has accelerated for three straight months and climbed to 4.1% (YoY) in September, its highest level since 1993. With no indications that inflation in Germany or the rest of the eurozone will ease anytime soon, the ECB will find it more difficult to ignore the threat of high inflation, especially with the surge in energy prices only adding to inflation levels.

EUR/USD Technical

With EUR/USD showing little movement, the support and resistance lines remain unchanged:

  • EUR/USD faces resistance lines at 1.1628 and 1.1685
  • EUR/USD tested support at 1.1588 earlier in the day. Below, there is support at 1.1531