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EURUSD Forecast Ahead of the ECB Interest Rate Decision

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EURUSD Forecast Ahead of the ECB Interest Rate Decision

The EURUSD price is under intense pressure as investors position themselves for the upcoming European Central Bank (ECB) decision. The pair declined to 1.1842, which was the lowest level since Thursday last week.

ECB decision ahead

After staying on the sidelines in August, the ECB will deliver its interest rate decision on Thursday this week. This will be a notable decision because of the relatively strong progress that the Eurozone economy has made in the past few months. 

For example, data published on Tuesday showed that the Eurozone economy expanded at a faster pace than earlier expected. Precisely, the economy rebounded by 2.2% in the second quarter. This was a better estimate than the first two, which showed that the bloc expanded by about 2%. 

According to Eurostat, the economic rebound happened as most European countries boosted their vaccination rates. This, in turn, has led to more businesses reopening. Indeed, some of the most affected sectors like hospitality and tourism were the best performers in the second quarter.

The rebound was also led by the strong consumer spending and corporate investments. Still, many European manufacturers are struggling to find workers. The chip shortage has also affected many automakers like Daimler and BMW.

Additional data published this week showed that consumer prices remain steady in the region. The headline consumer price index (CPI) rose by 3% last month. This was significantly higher than in the previous month. It was also greater than the ECB’s target of 2%.

Therefore, analysts at ING have identified some key scenarios for this meeting. Their base scenario is that the ECB will likely sound dovish. As such, it will likely not talk about the tapering of the large 1.85 trillion asset purchase program.  As a result, they expect that the EUR/USD will likely remain muted at the current range of about 1.1800.

ING ECB scenarios

ING ECB scenarios

Still, other analysts expect that the ECB will start deliberations on tapering since the economy seems to be in a good place. A common denominator among analysts is that the ECB will not talk about interest rates, which are expected to remain unchanged for several more years.

Stronger US dollar

The EURUSD came under pressure as the US dollar bounced back. The US dollar index rallied by more than 0.40% in the overnight session as risks of the US slowdown emerged. Last Friday, data by the Bureau of Labor Statistics (BLS) showed that the economy added just 235k jobs in August while the unemployment rate declined to 5.2%. Wages rose by 4.3%. 

Still, the US slowdown could happen after the government support measures on workers ended. The programs left more than 7.5 million unemployed people without benefits. This, in turn, could lead to poor consumer spending, which will hurt the biggest constituent of the American economy. At the same time, the Delta variant has kept companies like Chevron and Amazon from returning to offices.

On Wednesday, the BLS will publish the latest US vacancies numbers. Economists expect these numbers will show that the number of vacancies remained above 10 million.

EURUSD technical analysis

The hourly chart shows that the EURUSD pair has been in an overall bearish trend in the past few days. It is trading at 1.1840, which is about 0.55% below the highest level last week. Along the way, it has moved below the 25-day moving average while the MACD is slightly below the neutral level. Therefore, the pair will likely keep falling ahead of the ECB decision.

The uptrend on the EURUSD daily price chart between August 29 and September 7, 2021.

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