ECB moves forward with strict policy

Although inflation in the Eurozone is still very high and the current Eurozone economy is still experiencing a slowdown in growth, the European Central Bank (ECB) may be forced to further restrain economic activity in households and businesses by raising interest rates for the seventh time on Thursday.

The International Monetary Fund (IMF) has also advised the EU finance ministers to pursue a stricter fiscal strategy and asked the ECB to hike interest rates until mid-2024. This comes after the most recent headline inflation statistics for the Eurozone from Eurostat for April increased as predicted to 7.0% year-over-year. While core inflation, which excludes energy and food prices, slowed slightly to 5.6% and fell more than expected.

Since the eurozone's GDP increased by just 0.1% in the first three months of the year, markets and analysts still expect the ECB to raise interest rates this time by 25 basis points or even 50 basis points. This is a result of slow consumption in many nations, an indication that consumers are feeling the effects of rising inflation and dwindling real income. Although exports, which are a result of the revival of global trade since China's reopening, account for the majority of the growth.

The ECB's terminal rate might be about 3.6% this year, according to futures market pricing, and Belgian central bank governors anticipate rates to rise to 4%. While the majority of analysts anticipate at least one more rate hike after this Thursday. Nevertheless, the Federal Reserve is probably going to temporarily stop raising interest rates. This is due to the fact that core inflation, wages, and the reach of fiscal policy in the euro area have all increased more rapidly in Europe than in the US.

Inflation in Germany dipped to 7.6% in April from 7.8% the previous month, while inflation in Portugal and Ireland declined sharply, although it remains far above the ECB's 2% target. In contrast, rising inflation in France and Spain is primarily due to the expiration of certain energy assistance measures. Consumer goods price increases have been the main driver of eurozone inflation in recent months, driven by increasing gasoline costs, bad weather, and expanding profitability in various industries.

Furthermore, a tight labor market and demands for wage increases from German civil servants, who recently agreed to a 5.5 percent increase next year, could drive negotiations in other sectors and affect the ECB's forecast of wage growth this year.

The US dollar, on the other hand, fell off a two-week high on Tuesday ahead of the Federal Reserve's policy meeting, where interest rates are projected to rise by 25 basis points this week. As a result, the euro is expected to appreciate slightly in the immediate term. Although the uptrend will be hampered by the gap in yields between the two economies and concerns about the global economic slowdown, which has become more visible.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.1014, 1.1018, 1.1023

Support : 1.1002, 1.0998, 1.0993                   

5H Outlook

Source: Investing.com                                

Buy/Long 1 If the support at the price range 1.0997 - 1.1002 is touched, but the support at 1.1002 cannot be broken, the TP may be set around 1.1017 and the SL around 1.0994, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.1014 - 1.1019, TP may be set around 1.1028 and SL around 1.0998, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.1014 - 1.1019 is touched, but the resistance at 1.1014 cannot be broken, the TP may be set around 1.1002 and the SL around 1.1022, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0997 - 1.1002, TP may be set around 1.0990 and SL around 1.1017, or up to the risk appetite.       

Pivot Points May 03, 2023 01:40AM GMT

Sources: Investing 1, Investing 2