When is the European Central Bank (ECB) rate decision and how could it affect EUR/USD?

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 11:45 GMT. The recent surge in the Eurozone inflation to the highest level in over a decade prompted hawkish rhetoric from a host of ECB policymakers. Hence, the market attention will mainly be on the debate to reduce the pace of the current emergency stimulus program (PEPP) as well as on the central bank's view on inflation.

The decision will be followed by the post-meeting press conference at 12:30 GMT, where comments by the ECB President Christine Lagarde might infuse some volatility around the shared currency.

According to analysts at ING: “Any changes to the communication and policy stance look unlikely. Nothing else matters – only the inflation outlook. If this outlook or the take on second-round effects changes, will the ECB significantly alter its course.”

How could it affect EUR/USD?

Given that the markets have been pricing in a hawkish tone, the balance of risks is skewed to a lower euro if the ECB decides to retain its cautious stance. Moreover, any hints of tapering are likely to be overshadowed by expectations that the Fed might also begin rolling back its pandemic-era stimulus sooner rather than later. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside.

From a technical perspective, bearish traders are likely to wait for a sustained break below the overnight swing lows, around the 1.1800 mark, before placing fresh bets. The pair might then accelerate the fall towards intermediate support near the 1.1755-50 region before eventually dropping back to the 1.1700 mark.

On the flip side, some follow-through buying beyond the 1.1845-50 region should allow bulls to make a fresh attempt to conquer the 1.1900 mark. The next relevant resistance is pegged near the 1.1940 mark, above which the momentum could get extended towards the 1.1975 region en-route the key 1.2000 psychological mark.

Key Notes

  •  European Central Bank Preview: Taper on the table, but don’t get too excited about it

  •  ECB Preview: Forecasts from 12 major banks, dovish tone amid Delta force

  •  EUR/USD: Further gains to be dampened in case ECB maintains asset purchases – MUFG

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.