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, which will be followed by the post-meeting press conference at 12:30 GMT. The ECB has been lagging behind other major central banks in the process of policy normalisation and is facing a policy dilemma over record-high inflation amid concerns about the economic fallout from the Ukraine crisis. This might force the ECB to maintain maximum flexibility and adopt a wait-and-see approach. The central bank has the choice to end the Quantitative Easing (QE) program immediately or shift guidance to suggest that interest rates could increase as QE is unwound, and thereby maintain maximum flexibility.

According to analysts at ING: “Staying put and continuing with the announced reduction of net asset purchases looks like the only viable option for now. However, given the latest market pricing of future ECB rate hikes and unclarity about the ECB’s exact reaction function in these times of high uncertainty, ECB President Christine Lagarde could be forced to somewhat limit the ECB’s optionality to a few options.”

How could it affect EUR/USD?

Ahead of the key event risk, the ongoing US dollar pullback from a near two-year high allowed the EUR/USD pair to build on the overnight bounce from the vicinity of the 1.0800 mark, or the YTD low. A more hawkish ECB would be enough to provide an additional lift to the shared currency and pave the way for some meaningful upside. Conversely, a dovish tilt, or even a status-quo, would attract fresh selling and make the pair vulnerable.

As Eren Sengezer, Editor at FXStreet, explains: “The ECB is likely to respond to the euro’s weakness, aggressive tightening prospects of major central banks and hot inflation in the euro area by turning hawkish in April. For EUR/USD to stage a steady rebound, however, the bank may have to convince markets that they are preparing to hike the policy rate by June.”

Eren also outlined important technical levels to trade the major: “1.0950 (Fibonacci 38.2% retracement) aligns as the first resistance. In case this level turns into support, the pair could target 1.1000 (Fibonacci 50% retracement, psychological level, 200-period SMA) and 1.1040 (Fibonacci 61.8% retracement).

“On the downside, supports are located at 1.0900 (Fibonacci 23.6% retracement, 50-period SMA), 1.0870 (20-period SMA) and 1.0820 (static level),” Eren added further.

Key Notes

  •  ECB April Preview: Quicker end to QE to help euro recover

  •  ECB Preview: Lagarde set to lift euro with hawkishness, creating a sell opportunity

  •  EUR/USD Forecast: Euro has more room to rise on a hawkish ECB

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.