The ECB is slightly less accommodating due to rising inflation
Although Christine Lagarde says she doesn’t see a rate increase in 2022 under current conditions, but that could change!
At the December meeting of the European Central Bank, the ECB said it will let the Pandemic Emergency Pandemic Program (PEPP) expire at the end of March 2022, as scheduled, and buy bonds from one that was no longer significantly lower in the first trimester. However, the ECB will also extend the PEPP reinvestment time horizon until the end of 2024. In addition, due to the uncertain nature of the Omicron virus and due to short-term inflation (especially due to energy), Christine Lagarde noted that the Flexibility is important to the transmission mechanism. Therefore, after the PEPP expires, the Central Bank will use this flexibility to adapt the current Asset Purchase Program (APP) and buy 40 billion euros of bonds in the second quarter and 30 billion euros of debentures. in the third quarter, before returning to the maintenance level. 20 billion euros in progress.
The members of the ECB have also adjusted their forecasts for growth and inflation. The committee forecasts inflation above its 2% target for most of 2022, ending at 2.3% for the year. He sees inflation of 1.8% for 2023 and 2024. Additionally, the committee now sees growth in 2022 at 4.2%, 2.9% in 2023, and 1.6% in 2024.
EUR / USD has been trading lower in the forex market in a long-term descending channel since May 26. The pair stopped at its most recent low of 1.1186 on November 26, recording a false break below the channel. The pair EUR / USD it then bounced off the range and consolidated into a symmetrical triangle. Often times when the price fails to sustain a breakout on one side of a channel, it will move to the other side of the channel. The target for the channel’s upper trend line is near 1.1490.
EUR / USD daily chart
Source: Tradingview, Stone X
If the price is approaching the target, it must first break through a significant resistance. So far, the price has been unable to break through the horizontal resistance and the 38.2% Fib retracement from the October 28 highs to the November 24 lows near 1.1380. Above that, resistance crosses at the 50% retracement level from the same period at 1.1438, which converges with the 50-day moving average at 1.1443. The first support is at the lower trend line of the short-term triangle near 1.1262 prior to yesterday’s low of 1.1222. If EUR / USD crosses below, it can hit the Nov 24 low at 1.1144 and long-term horizontal support at 1.1020.
EUR / USD chart 4 hours
Source: Tradingview, Stone X
With the ECB forecasting the end of its bond buying program at the end of the third quarter of 2022, it is now “a little less favorable to the status quo.” And while Christine Lagarde says she won’t see a rate hike in 2022 under current conditions, that could change. Watch as stronger-than-expected inflation continues through Q1 2022, and if so, keep an eye on the EUR / USD pair to see if it moves with it!
By Joe Perry, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell currency or CFD contracts. Although the information contained in this document has been taken from sources considered reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone trusts such information.
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