EUR/USD gains momentum after the mild ECB interest rate decision

The EUR/USD rose after the relatively mild interest rate decision by the European Central Bank (ECB). The pair rose to 1.2050, which is about 3% above the lowest level this year.

ECB interest rate decision

The Eurozone economy is starting to pick up as more countries start to reopen. This was evidenced by the recent manufacturing and services PMI numbers that were published two weeks ago. Other numbers like retail sales, inflation, and industrial production have been modestly strong.

European countries are also starting to ramp up vaccination efforts. That’s after most of them had a difficult start compared to their peers. For example, companies like Germany, Italy, and France have vaccinated less than 20% of their population.

It is against this backdrop that the European Central Bank (ECB) conducted its April interest rate decision. The bank, led by Christine Lagarde, decided to leave interest rates unchanged for the 13th month in a row. This decision was in line with what most analysts were expecting.

At the same time, the central bank decided to leave its pandemic emergency purchases, also known as quantitative easing, policies unchanged. It is buying government bonds worth 1.85 trillion euros to help bring the cost of borrowing for individuals and governments lower.

Still, analysts at most forex brokers expect the bank to start signaling that it will wind down or taper the purchases starting from July. Christine Lagarde’s press conference will offer more clues about the future of these purchases. It said:

“The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.”

The EUR/USD is also reacting to the relatively cool US bond yields. The 10-year government bond yields has dropped to 1.56% while the 30-year yield has fallen to 2.25%. Later on Thursday afternoon, these yields will likely react to the latest US initial jobless claims numbers and existing home sales data.

EUR/USD forecast

The EUR/USD price has been in a relatively strong upward trend in the past few weeks. This has seen it move above the 50% and 38.2% Fibonacci retracement levels on the four-hour chart. The uptrend is also being supported by the 25-day and 15-day exponential moving averages. In technical analysis, this is usually a bullish move.

Therefore, the pair will likely continue rising as bulls target the 23.6% retracement level, which is 0.50% above the current price. However, a drop below the 50% retracement at 1.1970 will invalidate this trend.