EUR/USD forecast: ECB interest rate decision preview

The EUR/USD price retreated slightly during the Asian session as investors waited for the upcoming European Central Bank (ECB) decision. It is trading at 1.1300, which is a few pips below its highest level this week.

ECB interest rate decision

The ECB will conclude its first monetary policy meeting of the year on Thursday. Economists expect that the bank will leave its current policy instant.

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

This means that it will leave its interest rate unchanged where it has been since the pandemic started. At the same time, unlike other major central banks, it will likely continue with its asset purchases program.

The main catalyst for the EUR/USD will be the bank’s guidance for the future of rate hikes. Analysts expect that the bank will hint that it will hike interest rates two times this year. The bond market is also pointing to a hike as the 10-year German bund has risen to the highest level in two years.

Economic data published recently has been supportive of a rate hike by the ECB. For example, inflation numbers published this week have shown that the bloc’s consumer price index (CPI) jumped to the highest level on record. It is currently at 5.1%.

Further data showed that the EU unemployment rate has also been in a downward trend. The rate declined to 7% in December, which was the lowest level ever recorded.

Therefore, the ECB has partially succeeded in its mandate of low unemployment rate. As such, with inflation on an upward trend, it makes sense to start thinking about tightening. An analyst at BNP Paribas told FT:

“They are slowly changing their mind and for good reason, because what we are seeing is broad-based price pressure increasing.”

The ECB decision will come shortly after the BOE delivers its second interest rate hike since the pandemic started.

EUR/USD forecast

The four-hour chart shows that the EUR/USD pair has been in a strong comeback in the past few days although it retreated slightly overnight. The pair is trading at 1.1300, which is significantly higher than this year’s low of 1.1183. 

The EURUSD pair has moved above the 25-day and 50-day moving averages. The two averages are eve approaching a crossover point. 

Therefore, there is a likelihood that the pair will resume the bullish trend after the ECB decision. If this happens, the next key resistance to watch is at 1.1400.

Where to buy right now

To invest simply and easily, users need a low-fee broker with a track record of reliability. The following brokers are highly rated, recognised worldwide, and safe to use:

1. Etoro, trusted by over 13m users worldwide. Register here >
2. bitFlyer, simple, easy to use and regulated. Register here >