Euro edges up ahead of ECB meeting

The euro has posted slight gains ahead of today’s ECB policy meeting and is trading at 1.0916 in the European session.

ECB expected to maintain rates

We are seeing central banks respond to spiralling inflation with tighter policy. On Tuesday, both the Reserve Bank of New Zealand and the Bank of Canada implemented super-size increases of 0.50%, although the Canadian and New Zealand dollars moved in different directions after the moves. The ECB holds its policy meeting later today and is expected to maintain rates, even though, in the words of ECB President Lagarde, this will put the ECB “out of sync” with the Federal Reserve.

The eurozone has not been immune from rising inflation, which has galvanized the Fed and BoE into increasing rates. Earlier this week German CPI for March rose to 7.3% YoY, up from 5.1% gain in February. Eurozone inflation also accelerating, but the Ukraine war has caused plenty of uncertainty and turbulence in the markets, which has dampened any expectations of any tightening by the ECB in the short term. Western European nations could impose additional sanctions on Moscow, but such a move would also hurt growth in the eurozone and complicate things for ECB policymakers.

Investors will be keeping a keen eye on the rate statement and Lagarde’s press conference. Will the central bank hint that rate increases could be coming later in the third or fourth quarters? Or will the Bank send a message that it is not prepared to tighten policy while a war is raging in the eurozone’s backyard? If the ECB wants to send out a hawkish message even though it is maintaining rates, it could announce that it may raise rates as QE is scaled back. This would be a shift in guidance and could boost the euro, as the current stance is that the Bank will not raise rates prior to winding up QE.

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EUR/USD Technical

• There is resistance at 1.1008 and 1.1141
• 1.0838 is a monthly support level. Below, there is support at 1.0705

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