EURUSD strengthened after the ECB meeting

EURUSD chart analysis

During Asian trading, the euro added strongly to the huge gains from yesterday against the dollar. Following yesterday’s regular meeting, the ECB kept its monetary policy stance unchanged as expected. Asked by reporters about market prices for rate increases, Lagarde refrained from explicitly rejecting the possibility of rate increases this year. That “silence” provided a (speculative) stimulus to the euro. Lagarde also said that inflation in the eurozone remained high longer than expected. The euro is now being exchanged for 1.14740 dollars, which is a weakening of the common European currency by 0.32% since the beginning of trading tonight. At 2:30 p.m., regular monthly (NFP) data from the U.S. labor market is expected. Expectations for newly created jobs in November are around 150,000. The unemployment rate is projected to remain unchanged at 3.9%. The dollar index is under additional pressure and is approaching the 95.00 zone at the end of the week. Looking at the larger picture, the long-term positive attitude of the dollar remains unchanged above the 200-day SMA at 93.48.

Bullish scenario:

• The euro is in a big rush, and we can expect further growth of this pair.
• We need the continuation of the current positive consolidation until the next resistance at 1.14835, a place that was an obstacle in the previous bullish impulse.
• Up there, we are very close to the psychological level at 1.15000, which could increase the resistance at this level.
• With further progress, we are moving on to the next resistance zone at 1.16000. The last time we were there was in November last year.
• Then our next resistance is at 1.17000, high from October.

Bearish scenario:

• We need a new negative consolidation for pullback EURUSD back below the trend line.
• Around 1.14000, we can expect some support or consolidation.
• Then the next series of support is in the zone 1.12750-1.13000.
• Our MA20, MA50, and MA200 moving averages are additional support in that zone.
• The lowest support on this chart is our zone, around 1.120000.

Market overview

ECB news

The European Central Bank has finally acknowledged the growing risk of inflation and even opened the door to an increase in interest rates this year, marking a remarkable turn in the policy of one of the deepest central banks in the world.

The ECB has long argued that high inflation will fall below the 2% target later this year, but a series of record-high readings has challenged a narrative left by other central banks a few months ago.

“Inflation is likely to remain higher than previously expected but will fall this year,” ECB President Christine Lagarde told a news conference.

“Compared to our expectations in December, the risks to the inflation outlook are on the rise, especially in the near future,” she said, arguing that price growth in the 19 countries using the euro is widening.

Although Lagarde said the ECB would not rush any move, she refused to reiterate her previous guidelines that increasing interest rates this year was “very unlikely.”

Sources close to the discussion said that a significant minority of policymakers asked the bank to take action on Thursday, probably by announcing a faster reduction in bond purchases, before agreeing to postpone it until March.

The reaction of investors was fierce, and market moves were unusually large. Approximately 40-45 basis points of the rate increase were estimated by December after the press conference, compared to 28 basis points before.

Lagarde, however, insisted that the order of the ECB’s future political moves will not change so that the purchase of assets, which should now last indefinitely, will have to be completed before the cost of borrowing can increase.

“We will continue to respect the order we agreed on, and we will be gradual in every decision we make,” she said.

She said the March meeting would be crucial as new economic projections could provide justification for any political move.

Economic news

Eurostat data released on Friday, Eurozone retail sales fell more than expected in December.

Retail sales fell 3 percent on a monthly basis, up from a 1 percent increase in November. This was the first drop in five months and much higher than the economists’ forecast of -0.5 percent. On an annualized basis, retail sales progressed by 2.0 percent, which was weaker than the November jump of 8.2 percent and the expected growth rate of + 5.1 percent.