EUR/USD drifts above falling wedge after the ECB decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 22, 2021
  • The EUR/USD pair rose after the latest ECB interest rate decision.
  • The bank left its deposit facility rate at -0.50% and interest rate at zero.
  • The pair has formed a falling wedge pattern on the 4H chart.

The EUR/USD price drifted higher after the latest European Central Bank (ECB) interest rate decision. The pair rose to 1.1808, which was slightly higher than this week’s low of 1.1750.

ECB decision

The EUR/USD has been in a tight range this week as investors waited for the ECB decision. It rose immediately after the bank delivered its verdict. 

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The bank left interest rate unchanged as most analysts were expecting. It left the deposit facility rate at -0.50%, where it has been in the past few months. The bank also left the marginal lending facility at 0.25% and the overall interest rate unchanged at 0.0%. Notably, the bank also announced that it will continue with its pandemic emergency purchase program (quantitative easing). 

This was an important decision because it came exactly two weeks after the ECB unveiled its updated policy guidance. In this guidance, the bank’s officials announced a new symmetric inflation target of 2% and acknowledged that it will often move above and below this target. The previous target was for inflation to remain close to, but below 2%. In its statement, the bank said:

“In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent.”

Data published by Eurostat this month showed that the Eurozone inflation declined from 2.0% in May to 1.9% in June. This rate was relatively lower than that of the US, which rose to 5.4% in June as the prices of items rose. It was also above the UK inflation of 2.5%. 

The ECB meeting came at a time when the EU economy is battling with the new wave of coronavirus. In the past few weeks, countries like Germany, Spain, Portugal, and France have all reported rising cases.

EUR/USD technical analysis

The EUR/USD pair tilted higher after the latest ECB interest rate decision. The 4H chart shows that the pair has formed a major falling wedge pattern. In price action, a falling wedge is usually a bullish signal for an asset. It moved above the upper side of this wedge today.

It is also hovering at the same level as the 25-day and 50-day moving average while the Average True Range (ATR) has been moving sideways. Therefore, the pair will likely break out higher in the next few days. If this happens, the next key level to watch will be the resistance at 1.1850.

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