ECB faces mounting pressure to deliver a decisive response to the recent bank rout that is raising serious doubts on whether they will raise interest rates by 50bps tomorrow as previously indicated. Market expectations for a 50bps hike have dropped to less than 30%, with a 70% chance of just a 25bps hike.
In February’s statement, ECB said explicitly that “the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March”. However, the central bank has a recent history of overturning its intentions, leaving investors uncertain of their next move.
In June 2022 statement, it said “the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting”. But then in July, it hiked the three key interest rates by 50bps.
But of course, that’s just an “intention”. ECB never pre-commits to any policy move.
EUR/USD is now close to completing a head and shoulder top, with left shoulder at 1.0733, head at 1.1032, and right shoulder at 1.0759. Theoretically speaking, firm break of the neckline should have confirmed the reversal pattern already. On the other hand, strictly speaking, the ideal short entry should be on recovery back to the neckline, which might never happen.
To take a middle, decisive break of 38.2% retracement of 0.9534 to 1.1032 at 1.0258 will be taken as confirmation of the reversal. 61.8% retracement at 1.0106 will be the immediate near term target.
Let’s see whether ECB would help complete this technical formation.
