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EUR/USD: ECB hints at a "dovish" reversal

EUR/USD, currency, EUR/USD: ECB hints at a \

FOREX Fundamental Analysis on October 28, 2022

The European Central Bank expectedly raised its rate by 75 basis points on Thursday, which did nothing to strengthen the single currency. On the contrary, investors clearly heard a hint at the regulator's hawkish course during Christine Lagarde's speech.

In 2022 the ECB did not act as resolutely as the Fed, which actually has its reasons - the war in Ukraine, the energy crisis, the weak recovery of the economy after the pandemic COVID-19. Against this background, the European regulator will not, and will not be able to, catch up with the Fed on the speed of monetary restriction. The ECB is a clear outsider at this distance, the more so since the signals of a recession in the European economy make it very difficult to tighten the course of monetary policy.

Analysts noticed that the phrase about the need to raise rates at the next meetings has disappeared from the accompanying statement of the European regulator. And even this time not all of the governors agreed to raise the rate by 75 basis points. Three members suggested a 50-bp monetary tightening.

Perhaps the ECB is returning to its easing policy too soon, which will undo all the regulator's efforts to fight inflation. But on the other hand - the main driver of European inflation has been and remains energy prices. Decline in gas prices is likely to affect the dynamics of consumer prices.

The European Central Bank expectedly increased the interest rate by 75 basis points on Thursday, which did not strengthen the single currency in any way. On the contrary, investors clearly heard a hint at the regulator's hawkish stance during Christine Lagarde's speech.
In 2022 the ECB did not act as resolutely as the Fed, which actually has its reasons - the war in Ukraine, the energy crisis, the weak recovery of the economy after the pandemic COVID-19. Against this background, the European regulator will not, and will not be able to, catch up with the Fed on the speed of monetary restriction. The ECB is a clear outsider at this distance, the more so since the signals of a recession in the European economy make it very difficult to tighten the course of monetary policy.

Analysts noticed that the phrase about the need to raise rates at the next meetings has disappeared from the accompanying statement of the European regulator. And even this time not all of the governors agreed to raise the rate by 75 basis points. Three members suggested a 50-bp monetary tightening.

Perhaps the ECB is returning to its easing policy too soon, which will undo all the regulator's efforts to fight inflation. But on the other hand - the main driver of European inflation has been and remains energy prices. Decrease in gas prices will surely affect the dynamics of consumer prices.

In addition, the "hawkish" course of the Central Bank has been repeatedly criticized by the political leaders of European countries. And although the ECB is independent in its decisions, the slowdown in economic growth in the Eurozone could seriously affect the prospects of the monetary policy of the regulator.

By the way, there is a similar situation in the U.S. Recession risks may adjust the Fed's plans regarding the speed of monetary restriction.

The return of the ECB to the "dove" camp has dispelled the optimism of euro buyers. But the EUR/USD outlook is unlikely to be clear before the release of the results of the Fed meeting on November 3. I believe that investors will take a pause and wait for Jerome Powell's signals. Most likely, the pair will remain in a consolidation format, and although forex day strategies allow trades in both directions, we continue to keep selling open from 1.002 until the range boundaries are clearly defined.

Read more: The European Central Bank (ECB)

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General analysis and forecast for GBP/USD for today, November 7, 2024
GBP/USD, currency, General analysis and forecast for GBP/USD for today, November 7, 2024 On Thursday, GBP/USD shows steady growth and is trading around 1.2927, recovering losses from the previous session, when the dollar strengthened after the victory of Republican Donald Trump in the US presidential election. Earlier, Trump promised to tighten trade policy, including a significant increase in duties on imports from the EU and China. The Federal Reserve is expected to cut rates less aggressively compared to the European Central Bank (ECB) and the Bank of England, where the economic slowdown is more noticeable.Investors are focused today on the meetings of the Fed and the Bank of England, which are expected to reduce rates by 25 basis points to 4.75%. In the UK, the current rate is 5.00% after a 25—point cut in August - the first since 2020. After inflation fell to 1.7% in September, a level not seen since April 2021, further easing was expected, especially against the background of falling gasoline and airline ticket prices. However, the increase in expenses and debt obligations announced recently in the budget caused a revision of analysts' forecasts. Additionally, the slowdown in business activity in October, according to S&P Global UK, reduces the confidence of British companies. The corresponding index dropped to 51.8 points, the lowest value since November last year.Additional pressure on the pound was exerted by data on the UK construction sector. In October, the business activity index fell to 54.3 points against the projected 56.0. At the same time, the services sector showed a slight increase to 52.0 points, and retail sales, according to the British Consortium of Retailers (BRC), slowed to 0.3%, although expectations were at 1.4%.On the daily chart, according to the Bollinger band indicator, a slight decrease is noticeable, indicating a moderate expansion of the price range, but trading activity does not keep pace with this movement. The MACD indicator is also declining, maintaining a weak sell signal. Stochastic shows similar dynamics, turning downwards in the middle area.We are considering long positions when the level of 1.2948 breaks up with a target of 1.3050 and a stop loss at 1.2900.If the 1.2948 level turns out to be a strong resistance and a breakdown occurs down from the 1.2900 mark, this may be a signal for short positions with a target of 1.2817 and a stop loss at 1.2948.
Nov 07, 2024 Read
EUR/USD: with the return of Trump, analysts started talking about the level of parity
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Nov 07, 2024 Read
EUR/USD: the chances of the candidates winning are equal
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Nov 05, 2024 Read
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Nov 04, 2024 Read
EUR/USD: against the background of the elections, the dollar may not notice the NFP
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Nov 01, 2024 Read
USD/JPY: the Bank of Japan decided not to change the rate
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Oct 31, 2024 Read
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Oct 31, 2024 Read
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