EUR/USD bears in control ahead of the ECB rates decision

Written by: Crispus Nyaga
January 18, 2021
  • The EUR/USD has been under intense pressure ahead of the ECB interest rate decision.
  • The ECB will start its meeting on Wednesday and deliver its decision on Thursday.
  • Economists expect the bank will leave its policies unchanged.

The EUR/USD is struggling for the fifth straight day as forex investors wait for the important European Central Bank (ECB) decision scheduled for Thursday this week. The pair is also falling because of the stronger US dollar ahead of Joe Biden’s inauguration. It is trading at 1.2070, which is 2.30% below the year-to-date high of 1.2345. 

EUR/USD
EUR/USD has been in a downward trend

ECB interest rate decision

The ECB will start its first monetary policy meeting on Wednesday and deliver its verdict about the EU’s interest rates on Thursday. This decision will come at a time when the EU is implementing vaccinations to contain the coronavirus pandemic. It also comes at a time when the EUR/USD has pared some of its previous gains, which is a good thing for the European Union. 

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However, the European economy is struggling as the number of coronavirus cases has continued rising in most countries. That has seen more countries announce some limits on movements, which will have an impact on the recovery. 

Also, the meeting will start a day after the Italian parliament delivers its verdict about Prime Minister Giuseppe Conte. He will need to win members of his conservative party and some opposition members to stay in power.

Still, economists believe that the ECB will not tweak its monetary policy. It will possibly leave interest rates and the target of its quantitative easing policy unchanged. Also, with the rate of inflation so low, the bank will likely not signal any future changes to its policy. 

The EUR/USD is also falling because of the strong US dollar. The dollar index has risen by more than 0.15%, today, continuing a rally that started last week. This trend could continue ahead of Joe Biden’s swearing-in that will take place on Wednesday. He has pledged to provide more stimulus to support the economy. 

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EUR/USD technical outlook

EUR/USD
EUR/USD technical chart

A few days ago, I wrote that the EUR/USD was due for a correction, citing the bearish divergence shown by the Relative Strength Index (RSI) and the MACD. This happened, as shown above. 

On the four-hour chart, the pair has continued falling, moving below the 15-day and 25-day weighted moving averages (WMA). It has also moved below the rising red trendline and the 23.6% and 38.2% Fibonacci retracement levels. Similarly, the oscillators like the RSI and MACD have continued moving lower. Therefore, the next support to watch will be the 50% retracement at 1.1975.