ECB Raises Rates as Euro Falters Amid Global Economic Uncertainty

The European Central Bank has raised interest rates to a historic high in an attempt to tackle rising inflation in the eurozone, despite indications of a weakening regional economy. This marks the ECB's tenth consecutive rate increase since it initially miscalculated the speed of price increases early last year, resulting in the ECB's key interest rates being increased to 4.50%.

However, the ECB implied that this might be the last rate hike for a while, as they believe that these elevated rates, if maintained over a significant period, will significantly contribute to curbing inflation. As a result, the euro experienced a decline relative to the US dollar. Leading up to this decision, there was much debate about how policymakers would adjust interest rates to address persistent high inflation and a slowing economy.

The German economy faced challenges as it teetered on the brink of recession. Notably, the German government revised its economic forecast downward, predicting a contraction of up to 0.3% for the year, compared to its previous projection of 0.4% growth for 2023. Economic experts expected a contraction in the third quarter, followed by modest growth in the fourth.

The global economic environment, marked by higher borrowing costs and China's economic struggles, has put pressure on the eurozone's growth, raising the possibility of a recession. Manufacturing, in need of capital, is suffering due to higher borrowing costs, while lending to companies and households has plummeted. Additionally, the services sector, which experienced a post-pandemic boom in tourism, is now struggling. Once the rate increases conclude, the ECB may begin considering strategies for withdrawing excess liquidity it injected into the banking system over the past decade.

In the United States, consumer prices rose more than expected in August, driven by a significant increase in gasoline prices. The Consumer Price Index (CPI) reported a yearly increase of 3.7%, up from 3.2% in July and exceeding economists' estimates. Gasoline prices were the primary contributor to the monthly increase in August. Core inflation, excluding volatile elements, also edged up slightly on a monthly basis.

However, the U.S. CPI data released on Wednesday had minimal impact on market expectations for the Federal Reserve, as traders were almost certain that rates would remain unchanged on September 20, with only a 40% chance of a quarter-point increase by year-end.

While dealing with comparable inflationary challenges, the Federal Reserve exercised caution despite encouraging developments such as moderate wage increases and a decrease in anticipated inflation. This caution stemmed from the continued imbalances in supply and demand, heightened consumer outlook, and the sustained inflationary backdrop. Hence, it is anticipated that the euro will probably face ongoing pressure in the near to medium run, with potential fluctuations based on the central bank's monetary policy decisions and key economic indicators.

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

Resistance : 1.0644, 1.0646, 1.0651

Support : 1.0634, 1.0632, 1.0627           

5H Outlook

30Min Outlook

Source: Investing.com 

Buy/Long 1 If the support at the price range 1.0624 - 1.0634 is touched, but the support at 1.0634 cannot be broken, the TP may be set around 1.0644 and the SL around 1.0619, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0644 - 1.0654, TP may be set around 1.0670 and SL around 1.0629, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0644 - 1.0654 is touched, but the resistance at 1.0644 cannot be broken, the TP may be set around 1.0631 and the SL around 1.0659, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0624 - 1.0634, TP may be set around 1.0615 and SL around 1.0649, or up to the risk appetite.       

Pivot Points Sep 15, 2023 01:51AM GMT

Sources: Investing 1, Investing 2