Author: Sir Amar – Technical Analyst

The European Central Bank (ECB) is expected to confirm its intention to hike interest rates next month when policymakers meet in Amsterdam on Thursday for their first policy meeting outside of Frankfurt since the start of the coronavirus pandemic. While inflation in the 19-strong eurozone hit another all-time high in May, a rate hike is only on the cards in July as the ECB’s forward guidance requires it to officially end its net asset purchases first. The key question is how aggressive the change will be in the coming months: some analysts have revised their estimates for a larger rise by September at the latest.

Money markets are becoming increasingly optimistic on a more hawkish ECB after raising full-year guidance by a few additional basis points. There has been much talk of a 50-basis point rate hike in July and rumors of a surprise rate hike tomorrow. I think this is premature and highly unlikely. What we have seen is a change in tone from the ECB’s subsequent announcement, which has allowed the euro to remain relatively resilient against the US dollar this week.

EUR/USD price action keeps the Euro high ahead of tomorrow’s rate announcement. While the outcome of the ECB meeting is uncertain, both the immediate support zone at 1.0600 and the resistance zone trend line could be threatened. Namely, an aggressive result could take the Euro above 1.0700 or the trendline resistance, while an ECB sticking to its previous presentation could see the Euro rally to the 1.0600 support level once more.