Day: January 25, 2024

MAs have turned into resistance for EUR/USD, keeping buyers in check

The European Central Bank, as predicted held its monthly meeting today to close the week for central banks, after the BOJ and the Bank of Canada meetings previously. They all kept interest rates unchanged, with the ECB holding the Refinancing Rate stable at 4.50% as expected. Looking at the official statement which was released at the same time, the ECB is pushing back against market expectations for a rate cut in the first half of 2023, but that was expected too, which didn’t help the Euro.

According to the statement, the recent economic numbers confirm that inflation is slowing. The trend in core inflation continues to remain down, and rate hikes are having a strong negative effect on the economy by tightening financing conditions and lowering demand. So the Governing Council has decided to keep the key rates at current elevated levels for a sufficiently long period. although, even that didn’t help the Euro which touched 1.0823s just now.

ECB Monetary Rate Decision and Statement – 25 January 2024

• Main refinancing rate 4.50% vs 4.50% expected
• Prior ReFi rate was 4.50%
• Deposit facility rate 4.00% vs 4.00% expected
• Prior deposit facility rate 4.00%
• Marginal lending facility rate 4.75%
• Prior marginal lending facility rate  4.75%
• Incoming information has broadly confirmed previous assessment of the medium-term inflation outlook
• Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued
• Tight financing conditions are dampening demand, and this is helping to push down inflation
• Future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary
• Stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium-term
• Based on current assessment, interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal
• Intends to continue to reinvest, in full, principal payments from maturing securities purchased under PEPP during 1H 2024
• Full statement

The ECB delivered no shocks once again, as expected. The rhetoric in the comments indicates that they envision inflation continuing to slow down, but this does not imply that the ECB will reverse the policy, which also shows that the quick rate hikes weren’t a result of inflation, which came from abroad after all. EUR/USD has reversed lower and has lost around 80 pips so far, falling from above 1.09 to 1.0830s.

EUR/USD Live Chart

[[EUR/USD-graph]]