EUR/USD sparks higher after ECB leaves its pandemic support steady

The EUR/USD pair rose by 0.30% as traders reacted to a mild statement by the European Central Bank (ECB). The pair is trading at 1.1852, which is higher than yesterday’s low of 1.1750.

ECB interest rate decision

The ECB left the Eurozone’s key lending rates unchanged after its two-day monetary policy meeting. It left the deposit facility rate unchanged at -0.50. It also left the main interest rate unchanged at 0.0% and the marginal lending facility at 0.25%. That was in line with what most analysts polled by Reuters were expecting.

Most importantly, the bank said that it expects to leave these rates at the current levels until inflation reaches its 2% target. That will take years considering that interest rates in the bloc are at historic lows.

In addition to interest rates, the ECB decided to leave the limit of its pandemic emergency purchase program – quantitative easing – limit unchanged at €1.35 trillion. It is doing this by buying assets at a monthly pace of €20 billion. Also, the bank committed to continue its support for banks through the targeted longer-term refinancing operations (TLTRO III) program. In the statement, the ECB said:

“The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy.”

Analysts expect that the central bank will continue with these programs considering that the European economy is doing well. Recent data showed that retail sales have improved and manufacturing and services PMIs are above 50. That is a sign that the bloc’s companies are doing well.

At the same time, the bloc’s governments have agreed to provide more than €750 billion through its recovery fund.

Still, analysts expect the bank will boost its asset purchases in the December meeting and end the purchases in the fourth quarter of 2021. They also don’t see interest rates rising through December 2022.

EUR/USD technical outlook

The daily chart shows that the EUR/USD pair formed a bullish engulfing pattern yesterday when it declined to a low of 1.1750. Today, the pair re-entered the blue ascending channel. It remains above the short and longer-term moving averages, which is a sign of strength for the pair. Therefore, I suspect that the pair will continue rising as bears attempt to test the upper side of the channel at 1.2015.