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Asset Watch
Thursday, October 26, 2023
The EUR/USD traders are eagerly awaiting the European Central Bank’s decision today. The consensus expectation is that the central bank will maintain interest rates at the current 4.0%. It is also anticipated that ECB President, Ms. Christine Lagarde, will announce a pause in the interest rate hike cycle for this session and continue to monitor European inflation levels. Any significant uptick in inflation during November could set the stage for an interest rate increase in December.
The European Central Bank faces hurdles in its ongoing interest rate hike plans, primarily due to the lackluster performance of the European economy. This is evident in the European purchasing managers’ indices, which currently sit below the critical 50-point threshold, indicating economic contraction. These trends correlate with decreasing growth levels, potentially pushing the eurozone into a state of stagflation.
Given this economic backdrop, the market has largely discounted the possibility of the central bank raising interest rates. Consequently, any such increase would come as a surprise to investors. However, the European Central Bank still has options for tightening its monetary policy without resorting to interest rate hikes. One potential avenue is the decision not to reinvest the maturing bonds from the Pandemic Emergency Purchase Program (PEPP) as planned next year.
Chart source ADSS Platform
On October 13, the EUR/USD prices corrected higher and carved out a higher low at 1.0496, with some bears exiting their positions. However, this week, prices closed below the 1.0629 level, suggesting a lack of buying interest. This could potentially lead to a test of the 1.0482 level. A daily close below this level might encourage a bearish sentiment, pressing towards 1.0364. Nonetheless, the support level located at the October 3 low at 1.0448 should be kept in focus.
Conversely, any reversal that results in a daily close above the 1.0629 level, it could open the door for a further upward movement, that could rally the price for a test of the resistance area ranging between 1.0760 and 1.0789. However, the 50-day simple moving average, situated at 1.0645 should be monitored.
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