Frankfurt, Germany. The European Central Bank (ECB) and Euro Sign. Image source: Noppasin Wongchum © 123RF.com
The October monetary policy decision of the European Central Bank did not envision any transformational changes. However, the slightly more hawkish tone of the bank affected the euro in the short term. Have a look at our previous analysis of the EURUSD to get a better sense of the broader market sentiment.
The European Central Bank, chaired by Christine Lagarde, expectedly decided to maintain the Main Refinancing Rate unchanged at 0.00 per cent. Even though the scope of the Pandemic Emergency Purchase Programme (PEPP) was not altered, the Governing Council of the ECB deemed it necessary to dial back the pace of its purchases. This caused an immediate uptick in volatility on the EURUSD.
EURUSD 2H Price Chart. Image source: Trendsharks ©, created with TradingView.com
The price action of the pair remains concentrated within the boundaries of a small consolidation range, spanning between the 61.8 per cent Fibonacci retracement level at 1.15794 and the 38.2 per cent Fibonacci at 1.16138.
However, the recent development of a Triple Top, which is a classic trend reversal pattern, signifies the likely emergence of a subsequent downtrend. This would depend on whether the price action manages to break down below the 200-day MA (in orange), which currently underpins the support level at 1.15970.
Notice that the 50-day MA (in green) and 300-day MA (in purple) converge with the upper limit of the range (the 38.2 per cent Fibonacci), which makes the latter an even more prominent threshold. This substantiates the expectations for the accumulation of additional selling pressure over the near term.
If the price action manages to penetrate below the 61.8 per cent Fibonacci decisively, the next target for the new downtrend would likely be the previous swing low at 1.15400.
More hawkish-sounding ECB
The decision of Christine Lagarde and her colleagues from the Governing Council to dial back the pace of ECB's pandemic purchases is underpinned by the slow global recovery that has been recorded over the previous quarter.
Press release: Monetary policy decisions https://t.co/R4dc0aGg33
— European Central Bank (@ecb) October 28, 2021
In the monetary policy statement, it was argued that:
"The Governing Council will continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over. The Governing Council continues to judge that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the second and third quarters of this year."
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