Christine Lagarde President of the ECB.
Market perceptions are currently being motivated by traders and investors' outlook on inflation in Europe and the U.S. To understand how this is affecting the Euro and the greenback, check out our last comprehensive analysis of the EURUSD pair!
The Governing Council of the European Central Bank expectedly decided to maintain the near-negative Main Refinancing Rate unchanged at 0.000 per cent. The Pandemic Emergency Purchasing Programme (PEPP) is also left with the same envelope of 1850 billion euros.
EURGBP 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
The EURGBP pair continues to prepare for an eventual breakout above the 23.6 per cent Fibonacci retracement level at 0.86522, which would signal the likely beginning of a new massive Markup. Markups are an essential component of the Wyckoff Cycle Theory.
Notice that the current consolidation is taking the shape of a Descending Wedge, which typically serves as an interim component before the price resumes climbing. In other words, the emergence of such a Wedge below the 23.6 per cent Fibonacci is inlined with the primary expectations for a breakout.
The Stochastic RSI indicator is underpinning rising buying pressure as well, which could catalyse a decisive breakout above 0.86522. Before it could take place, however, the price would also have to break out above the 50-day MA (in green) and the 100-day MA (in blue).
The two moving averages serve as floating resistances at present. Yet, a decisive breakout above them, coinciding with a breakout above the 23.6 per cent Fibonacci and the Wedge's upper boundary, would represent a convincing indication of the beginning of a new Markup.
Inflation Still Below ECB's Projections
The Council decided to "confirm its very accommodative monetary policy stance" because financial conditions in the Euro Area continue to be affected by the pandemic.
The recovery process continues to be bumpy and uneven, which is causing investors' sentiment to be easily jolted. Financial stability in the Eurozone is thus still dependent on ECB's massive liquidity support.
The primary reason why the Council refrained from slowing down the pace of its emergency asset purchases is that inflation continues to be below the Bank's longer-term projections.
Euro Zone Inflation Rate. Image source: TradingEconomics.com
Headline inflation in the Eurozone is currently at 2.0 per cent, though Christine Lagarde and her colleagues expect consumer prices to fall in Q3 as energy demand eases.
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