The EURUSD pair is little changed today as traders wait for the conclusion of the two-day meeting by the European Central Bank. The pair is trading at 1.1396, which is a few pips below the yesterday’s high of 1.1451.
A monetary policy meeting tends to lead to significant volatility in the market. That is because central banks tend to surprise investors by moving aside from the forward guidance. For example, in the June monetary policy meeting, the EURUSD pair jumped because the ECB announced that it was adding 600 billion euros into its quantitative easing program.
However, today’s interest rate decision is unlikely to move the pair. That is because investors have already priced-in what the bank will say. For example, we know that the bank will leave interest rates unchanged, as the BOJ and BOC did yesterday. We also know that the bank will not talk a lot about quantitative easing because we expect it to continue. Also, we are aware that Lagarde will sound a bit cautious about the state of the state of economy.
This meeting comes at a time when data from the eurozone has been a bit promising. For example, data released today showed that car registrations in Germany jumped by 31% in June while those in France rose by 142%. The chart below from ING shows the likely scenarios for the ECB decision.
Instead of the ECB decision moving the EURUSD pair, the main driver will be the recovery fund talks that will be held tomorrow. Analysts at ING wrote:
“The impact on the euro should thus be limited. Near-term, the more important driver is the progress on an EU Recovery Fund.”
European leaders are divided about how to implement the 750-billion-euro recovery fund program. On the one hand, some countries like France and Germany have supported giving out these funds in form of grants. On the other hand, the so-called “frugal four” believe that the funds should be given out in the form of low-interest loans.
A successful meeting will push the EURUSD pair while a less successful one will shift sentiment down.
The EURUSD pair is trading at 1.1395. On the daily chart, this price is above the 50-day and 100-day exponential moving averages. The price is also slightly below the important resistance level of 1.1423 that is shown below.
It is important because it was the highest point on June 10. Most importantly, the pair formed an shooting star pattern yesterday, which is usually a sign that the price will continue moving lower. If it does, the key support level will be 1.1350.
On the flip side, a move above the resistance level of 1.1423 will invalidate this trend.