EUR/USD bursts higher as analysts expect the ECB to boost its PEPP stimulus

EUR/USD bursts higher as analysts expect the ECB to boost its PEPP stimulus
  • EUR/USD hits resistance near the $1.12 mark on a 6-day rally
  • A strong resistance is located between $1.1180 and $1.1240
  • The ECB meeting is taking place on Thursday as analysts expect the bank to increase the size of its PEPP fund

EUR/USD is on its way to close higher for a sixth consecutive day in a rally that has so far yielded around 300 pips. All eyes will be now set on the European Central Bank’s (ECB) meeting on Thursday.

Fundamental analysis: ECB in focus

Multiple financial institutions have issued their analysis and preview of the ECB meeting that is scheduled to take place on Thursday. A Dutch multinational banking giant ING said it expects the ECB to boost its Pandemic Emergency Purchase Programme (PEPP) stimulus later this week.

“Combined, they imply a slower pace of purchases than what has been implemented so far: from the current run rate of roughly €105 billion per month that can continue until October, to €56 billion if the additional envelope is spent evenly until June 2021,” the bank said in a note.

ING expects to see PEPP increased by 500 billion EUR and purchases extended by the middle of the next year as ECB races to provide additional stimulus to embattled economies of its member states. 

Similarly, analysts from the London-based Principal Global Investors expect to see PEPP increased.

“We are anticipating an increase in asset purchases. It will be important to see if there’s any acknowledgement of the ruling from the GCC and how it impacts the ECB going forward,” she added, referring to the German constitutional court ruling in May that the ECB had overstepped its mandate,” said Seema Shah, chief strategist at Principal Global Investors.

The eurozone government bond yields edged lower today in the anticipation of the ECB meeting later this week.

Technical analysis: EUR hits 11-week high against the USD

As Invezz correctly predicted a month ago, EUR/USD has made gains in the past week as the buyers take advantage of the wounded USD. The pair printed a new 11-week high around $1.1180 as the rally stops following a tag of an important resistance line.

EUR/USD weekly chart (TradingView)

“We turn strategically bullish on EUR/USD following the EU debt recovery fund proposal,” Morgan Stanley strategists said. The EU unveiled last week a 1.85 billion euros worth post pandemic relief package.

As seen in the chart, EUR/USD hit a first horizontal resistance around $1.1180, with the next one located around $1.1240. Moreover, the buyers are also facing the 100-WMA at $1.1220, making this area a triple confluence zone. 

Summary

EUR/USD has stopped near the $1.12 mark after rallying for six consecutive days to gain around 300 pips in total. All eyes are now set on the ECB meeting, with analysts expecting an increase in the PEPP size by 500 billion euros.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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