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Ahead of tonight’s FOMC decision, ECB governing council member Gabriel Makhlouf has dismissed talk of an early end to the bank’s Pandemic Emergency Purchase Programme (PEPP).
Reuters quoted Makhlouf on Wednesday as saying that despite the bumpy and uneven nature of recovery, tapering of government supports will test the viability of some firms.
Several ECB governing council members have, at various times, warned that early tapering the PEPP would have adverse effects on Eurozone recovery.
The market reaction has been one of muted bearishness in response to these comments. The EUR/USD is trading 0.12% lower at 1.2110 as of writing, in a quiet trading session ahead of the FOMC decision later today.
The pair remains in a corrective mode due to the rising wedge’s breakdown on the daily chart on 1 June. The pair continues to trade just above the 1.20890 support after Friday’s bounce. Suppose the FOMC delivers affirms its previously-held accommodative stance. In that case, we could see a weakening of the greenback, allowing the EUR/USD to reverse the day’s losses and target the 1.21487 resistance. An extension of the advance brings 1.2200 into the picture, with 1.22416 (25 February/20 May highs) also serving as an additional upside target.
On the flip side, if the Fed gives indications of early tapering or acknowledges that the recent inflation rise could be longer-lasting, it provides an avenue for the pair to shed more weight, testing the 1.20890 support once more. If this support gives way, 1.20549 and 1.2000 become additional targets to the south.
