The EUR/USD is holding steady ahead of the final interest rate decision by the European Central Bank (ECB). Forex investors are also reacting to the fruitless meeting between Boris Johnson and Ursula von der Leyen.
ECB interest rate decision
The ECB, under Christine Lagarde, will deliver its interest rate decision later today. Like the Bank of Canada (BOC), most analysts believe that the bank will not change its main interest rates today. In fact, the bank has previously guided to lower rates for the next two years.
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The only potential change will be in the quantitative easing program, where analysts expect the bank to increase the size and lengthen the duration of the purchases. The amount of possible increase will range between €400 billion and €600 billion, according to bank analysts. An Evercore ISI analyst said:
“We fear that the ECB may struggle durably to contain euro strength even with the longer PEPP extension that would imply a slowing in the pace of QE [quantitative easing] over time. This puts the spotlight also on the tone the ECB strikes on possible future depo rate cuts.”
The ECB decision comes at an important period for the region. The euro has soared against most peers, including the US dollar, putting pressure on the region’s exporters like Daimler and Volkswagen.
Also, the meeting comes at a period when the number of Covid cases in most countries like Germany and France is rising. This risks the bloc suffering a double-dip recession in the fourth quarter. A no-deal Brexit will worsen the situation.
However, the meeting comes at a hopeful period, with countries preparing the vaccination process. Most importantly, it comes a day after European countries reached a preliminary agreement on the budget. This means that countries will soon get access to the €750 billion recovery funds and the €1.8 trillion budget.
EUR/USD technical outlook
The EUR/USD pair has been on a strong upward trend, as shown in the daily chart above. It is a few pips below the year-to-date high of 1.2175. It is also above the 25-day and 15-day exponential moving averages and is also forming a bullish flag that is shown in green. At the same time, the price is above the important support at 1.2012.
Therefore, in the near term, the bullish trend will possibly continue as bulls aim for the next resistance at 1.2200.
For today, unless the European Central Bank surprises, the rate decision will likely not have a major impact on the pair.