EUR/USD forecast: more downside after the ECB decision?

The EUR/USD price retreated on Thursday even after the European Central Bank (ECB) delivered a relatively hawkish interest rate decision. The pair dropped to a low of 1.0760, which was the lowest point since 2020, which was about 3.70% below the highest level this month.

ECB interest rate decision

The EUR/USD concluded its two-day monetary policy meeting and decided to do what most analysts were expecting. The bank decided to leave interest rates unchanged in a bid to support the bloc’s economic recovery.

The bank also decided to continue unwinding the expansive monetary policy it adopted during the Covid-19 pandemic. The statement said that the “calibration of net purchases for Q3 will be data-dependent and reflect on the evolving assessment of outlook.”

The ECB has had to go through a balancing act by leaving interest rates unchanged and continuing to unwind policies set during the pandemic. Officials fear that rising interest rates too fast could lead to a major slowdown of the bloc’s economy. 

The situation has been made worse by the overall lack of data on the impact of the ongoing crisis to the European economy. While the economic recovery has worsened, there are risks to the extent of the damage. 

The EUR/USD declined after the decision because the interest rate decision was in line with what analysts were expecting. As such, a situation known as buying the rumour and selling the news emerged.

The pair also declined because of the mixed economic data from the United States. Data by the American government showed that the headline retail sales rose by just 0.5% in March after rising by 0.8% in the previous month. The sales rose by 6.88% on a year-on-year basis. Core retail sales rose by 1.1% from the previous 0.6%.

EUR/USD forecast

The EUR/USD declined to a multi-year low after the latest interest rate decision by the ECB. On the four-hour chart, it moved below the lower side of the descending channel shown in purple. It has also moved slightly below the 25-day and 50-day moving averages. Further, the pair moved below the important resistance level at 1.090, which was the lowest level on March 14th. Therefore, the pair will likely continue falling as bears target the next key support at 1.0700. This is in line with my earlier forecast ahead of the ECB meeting.