Geopolitics has dominated market moves so far this week; however, focus will swing strongly back to fundamentals midway through the day on Thursday as the European Central Bank updates the market on its latest Interest Rate decision. The market is pricing in a 93% chance that they will keep the Main Refinancing Rate on hold at 2.40%, however traders are anticipating plenty of volatility around the event as the market analyses the forward guidance given by Christine LaGarde and team.
The market will be focusing on inflation expectations from the board given the recent escalation in the war in the Middle East and the surge in energy prices. Recent data saw a drop in inflation across the Eurozone, which pulled back on rate hike expectations, but since the end of the ceasefire between the US and Iran the market is now pricing in an 85% chance that the bank will raise rates in September and traders are expecting to see strong moves in the Euro if we see a big swing in sentiment from these expectations in the statement or the press conference.
The EURUSD is trading at good levels from a technical perspective for traders to take advantage or any strong updates – or indeed a surprise hike – and the market is expecting to see plenty of volatility around the event. The pair is currently trading just above strong support levels with the trendline support on the daily chart and the annual low both in striking distance. While the recent tight ranges have also brought resistance levels within target as well. Anything more hawkish should see the single currency drive higher, while a surprise dovish ‘wait and see’ update could see those support levels break and open the way for a deeper move south.
Resistance 2: 1.1482 – July High
Resistance 1: 1.1449 – Trendline Resistance
Support 1: 1.1388 – Trendline Support
Support 2: 1.1324 – 2026 Low
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