- EUR/USD has lost its bullish momentum despite the ECB’s 75 basis point hike.
- ECB officials express different views on the prospects for monetary policy.
- The pair faces the next short-term support at 0.9920.
The EUR/USD pair has reversed its direction and fallen below the key parity level, with investors weighing the European Central Bank’s (ECB) monetary policy decisions and communication. The technical outlook points to a bearish bias and the incoherent comments from the ECB’s monetary policy makers do nothing to help the common currency hold firm against the dollar.
As expected, the ECB raised its key rates by 75 basis points (bps) after the October monetary policy meeting. During the press conference, ECB President Christine Lagarde refrained from giving details on possible quantitative tightening. Although Lagarde noted that she had more to do regarding policy normalization, she avoided committing to a specific size of a December rate hike and argued that it was not useful to speculate on the neutral rate.
Citing sources familiar with the matter, Reuters reported after the ECB event that three members of the Governing Council voted in favor of a 50 basis point rate hike at this meeting, reflecting differences of opinion among policymakers. Governor of the Bank of France, Francois Villeroy de Galhau, said on Friday that “there is no obligation to raise rates by 75 basis points at the December meeting.” In a hawkish tone, a member of the ECB’s Governing Council said the next rate hike “has to be substantial.”
Meanwhile, data from Germany has shown that Gross Domestic Product expanded at an annual rate of 1.2% in the third quarter, beating the market forecast of 0.8% growth. However, the uncertainty surrounding the ECB’s rate outlook did not allow the euro to take advantage of that data.
In the second half of the day, the US Bureau of Economic Analysis will release PCE Personal Consumption Expenditure Price Index data for September. Core PCE inflation is expected to rise to 5.2% from 4.9% in August. Weak inflation data could make it difficult for the dollar to gain further strength ahead of next week’s expected Fed meeting and vice versa.
EUR/USD Technical Analysis
50% Fibonacci retracement of 1-week uptrend forms initial support at 0.9920, ahead of 0.9900 (psychological level, 50-period SMA 4h chart) and 0.9850 (61.8% Fibonacci retracement) .
To the upside, the 23.6% Fibonacci retracement and the 20-period SMA reinforce resistance at 1.0000. If EUR/USD retraces that level and confirms it as support, it could once again head for 1.0050 (static level, former resistance) and 1.0100.
It is worth noting that the RSI indicator is now slightly below 50 and the pair closed the last four-hour candle below the 20-period SMA, which points to a bearish bias in the short-term outlook.
Source: Fx Street
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