EUR/USD ticks higher after the ECB interest rate decision

Written by: Crispus Nyaga
January 21, 2021
  • The EUR/USD rose for the second straight day after the European Central Bank decision.
  • The bank left interest rates and other pandemic response measures intact.
  • The pair also rose because of the general dollar weakness.

The EUR/USD rose after the European Central Bank (ECB) interest rate decision. The euro traded at 1.2145 against the dollar, which is 0.80% higher than the year-to-date (YTD) low of 1.2054.

EUR/USD
EUR/USD YTD performance

ECB interest rate decision

The ECB concluded its monetary policy meeting and left its policy tools intact, in line with expectations. The bank left the interest rate in refinancing operations and the marginal lending rate intact at 0.0% and 0.25%. It also left the deposit facility rate intact at minus 0.5%. 

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The bank expects to leave these rates at the current levels until inflation rises to 2%. This could mean two to three years since the current inflation in the Eurozone is below 1%. 

Further, the bank left the size of its pandemic emergency purchase program (PEPP) intact at 1.35 trillion euros. It estimates that the program will end in March next year. In addition, the bank will continue the asset purchase program at a pace of 20 billion euros per month. The statement said:

“The bank will continue to provide ample liquidity through its refinancing operations. The third series of targeted longer-term refinancing operations remains an attractive source of funding for banks, supporting bank lending to firms and households.”

Other banks like the Turkish Central Bank, Norges Bank, Bank of Japan, and Bank of Canada left rates unchanged this week.

In addition to the ECB decision, the EUR/USD is rising because of the weaker US dollar. The dollar has declined against most major and minor currencies as forex investors wait for more stimulus in the new Biden administration.

The president has pledged to spend as much as possible to support the economy. His first action will be a $1.9 trillion package that he unveiled last week. He is also planning to spend trillions on infrastructure and clean energy projects. 

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EUR/USD technical outlook

EUR/USD
EUR/USD technical chart

The EUR/USD pair rose to an intraday high of 1.2156 after the ECB decision. On the four-hour chart, the pair has moved above the 25-day and 15-day EMAs while the RSI has moved from the oversold level of 30 to 60. 

The pair has also formed a small ascending channel and is slightly below the upper side. Therefore, in the next few hours, the pair could continue rising as bulls eye the upper side of the channel at 1.2173. However, there is a possibility that it will resume the downward trend in the near term.