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ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday, May 5, at 12:15 GMT, which will be followed by the post-meeting press conference at 12:45 GMT. The ECB is widely expected to raise its borrowing rates for a seventh meeting in a row, though market participants are divided over the size of the increase. Nevertheless, a majority of the market participants anticipate that the ECB will slow the hiking pace and announce a smaller 25-bps move as compared to the 50-bps lift-off in March. This is likely to create more ambiguity for the July meeting. Hence, investors will scrutinize the accompanying monetary policy statement and ECB President Christine Lagarde’s comments for fresh cues about the future rate-hike path.

How could it affect EUR/USD?

Heading into the key central bank event risk, the EUR/USD pair retreats from the vicinity of the 1.1100 round figure amid a modest US Dollar (USD) bounce from over a one-week low. A 25 bps rate hike by the ECB, with no forward guidance or a dovish shift, could weigh on the Euro and pave the way for some meaningful downside for the major.

Conversely,  a hawkish 50 bps lift-off, though seems unlikely, could raise contagion fears stemming from the US banking crisis. This, in turn, will fuel speculations for an earlier ECB rate cut, which, in turn, should attract fresh sellers around the shared currency, warranting some caution for bullish traders and before positioning for any further gains.

Eren Sengezer, European Session Lead Analyst at FXStreet, outlines important technical levels to trade the major and writes: “EUR/USD faces initial resistance at 1.1100 (psychological level, static level, mid-point of the ascending regression channel). Once the pair rises above that level and confirms it as support, it could target 1.1160 (static level from March 2022) and 1.1200 (psychological level, static level).”

“On the downside, 1.1050 (former resistance, static level) aligns as interim support before 1.1025 (lower-limit of the ascending regression channel, 50-period Simple Moving Average (SMA)) and 1.1000 (100-period SMA; psychological level),” Eren adds further.

Key Notes

   •  European Central Bank Preview: Lagarde set to lift the Euro in two out of three scenarios

   •  ECB Preview: 25bps is not the same as 50bps

   •  EUR/USD Forecast: ECB-Fed policy divergence could lift Euro

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.