Image source: Marian Vejcik © 123RF.com
The Governing Council of the European Central Bank will be gathering this Thursday to decide on whether any changes to the underlying interest rate in the European Union are warranted at the present rate.
The previous monetary policy meeting of the Council was held on the 12th of December 2019, when it was decided that the best course of action was to maintain the interest rate on the main refinancing operations unchanged at 0.00 per cent.
In the monetary policy statement following the conclusion of the last gathering of the ECB’s Governing Council, it was argued that:
“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon and such convergence has been consistently reflected in underlying inflation dynamics.”
Since then, the inflation rate in the Eurozone has risen by 0.3 percentage points to the current level of 1.6 per cent. The positive surge was recorded in late December after the ECB’s last monetary policy meeting.
The price stability across the Eurozone, however, remains subdued and below the Governing Council’s 2 per cent target level.
Nevertheless, the current accommodative monetary policy is expected to continue stimulating heightened spending across the EU member-states, which is anticipated to trigger even more robust inflation into the first fiscal quarter of 2020.
Given the most recent muted inflationary pressures that were recorded at the end of last year, the most likely outcome of Thursday’s monetary policy meeting is one in which the interest rate decision remains unchanged at 0.00 per cent.
EU Inflation Rate. Image source: TradingEconomics.com
The Governing Council of the ECB is most likely to remain vigilant and extend the length of its accommodative monetary policy until the headline inflation becomes more suitable.
Still, the overall economic situation in the EU has improved since last December, which seems enough to prompt the Council to express more optimism about the near future, which, in turn, is likely to prompt strengthening of the euro.
The Council is additionally likely to clarify more uncertainties surrounding its immediate strategy for future development, which is going to boost the overall investors’ confidence.
Thus, overall, the euro is likely to strengthen by the end of the week, prompted by the clearing of some uncertainties surrounding the economy of the Eurozone.
The EURUSD pair has already fallen to the support level at 1.10906 (38.2 per cent Fibonacci Retracement level), as we projected last Wednesday.
Now, the price is likely to find support at 1.10740 and then turn into e short-term bullish correction, driven by the ECB’s interest rate statement.
EURUSD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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