ECB Interest Rate Decision (ECB): The central bank hiked rates, as expected.

The European Central Bank (ECB) has left rates unchanged in line with expectations, with the deposit rate at 2.5%. 

The central bank highlighted two forces pulling inflation in different directions. Firstly, the upward risk to inflation from rising energy prices from the Middle East conflict. However, higher bond yields across Europe stemming from the fiscal and political crises in France have the opposite effect, raising borrowing costs and tightening financial conditions.

The ECB noted that underlying inflation remains stable and wages are not yet responding. This suggests higher energy prices are not yet seeping into other parts of the economy.

Markets reacted dovishly, with French 10-year yields modestly lower and the EUR falling, while the EU Stoxx held earlier gains. A December hike remains on the table.

Attention will now turn to ECB President Christine Lagarde’s speech. Lagarde announced that she will leave her post on February 7, before the end of her term, adding to a complicated backdrop given the political and fiscal troubles in France.

EURO VS DOLLAR (EUR/USD):

EUR/USD was trading -0.2% at 1.1130 ahead of the ECB decision and trades slightly lower post decision. The price trades below its 50 and 200 EMAs on the 4-hour and the falling trendline in a bearish picture. Sellers need to take out support at 1.1110 to extend the bearish move towards 1.10 the psychological level. A rise above 1.12  and 1.1240 could turn the outlook constructive.

EURO STOXX 50 (EU50):

The EURO STOXX 50 is holding earlier gains. The price traded at 6208 ahead of the meeting and continues to trade there post meeting. The price is extending its recovery from the 6020 October low. The price is testing resistance at 6210, the 200 EMA. A rise above here could see buyers gain traction towards 6300. On the downside, support is seen at 6150, the 50 EMA. Below here, 6100 comes into play.

Trade Now

Trading involves risk.