EUR/USD To Test 1.15 Barrier As ECB Retains Policy Forbearance

The European Central Bank (ECB) believes that inflationary pressures are temporary and has stated that the next “live” meeting will take place in December. According to economists at Westpac, high inflation figures may put pressure on the EUR/USD to break beyond 1.15.

Supply-chain expenses and labor shortages are putting a damper on business. Core members of the European Central Bank have recently expressed their intention to avoid any hasty withdrawal of monetary accommodation, while also emphasizing that present upward inflation expectations are primarily temporary. In doing so, they have practically ruled out any possibility of an early ‘recalibration’ of either the PEPP (which is set to expire in late Q1) or the APP, at most till the staff predictions are revised in December, if at all.

The survey data has been showing a clear decline in recent months, while inflation readings have stayed high, indicating that rising supplier costs and labor shortages are impeding activity. This should raise the amount of attention paid to flash October PMIs. The conservative posture of the European Central Bank places it at the dovish end of the global Central Banks’ swings towards trimming or boosting, and it is certain to limit any EUR/USD recoveries and keep pressure on the 1.15 support level.

Outline Of The Finer Details

EUR/USD CHART. Source: Tradingview.com

In a relatively quiet session on Thursday, the Euro gained ground against the Dollar. The exchange made gains near 1.1600 throughout the US session, as a result of widespread USD selling. Also on the daily chart, the EUR/USD duo has begun the month of October on a sour note, with the couple targeting the yearly lows at 1.1524 this Tuesday. The spot price is already trading underneath the 21-day Simple Moving Average (SMA) at 1.1638, signaling a possibility of a further drop in the price. While this is a positive development, the prior session’s solitary gain is in contrast to the pair’s four-session decline.

Review Of The Basics

On Wednesday, the currency rallied from almost 15-month low points of 1.1524 to temporarily touch 1.1600. The stronger-than-expected US Consumer Price Index accelerated the Fed’s rate rise forecasts, causing a steep drop in longer-dated Treasury yields and increased Greenback pressure. The CPI increased by 5.4 % year on year, exceeding expectations, while the Core CPI remained unchanged at 4% year on year.

This came when markets turned to sell due to  the fact that the Fed authorities are poised for a slow trim, which is anticipated “either in mid-November or mid-December,” according to the September meeting’s papers. The duo will now await the US Producers’ Price Index (PPI), weekly Unemployment Rate Claims, and Fedspeak. In the meanwhile, the Fed’s mood and the strength of the Dollar movement will be widely watched.