- ECB holds as expected
- Downside growth risks a concern
- EURGBP fails to hold above key resistance
There were no major surprises from the ECB on Thursday, with the central bank leaving rates on hold while warning they will remain high for a sufficiently long duration.
However, there were signs that policymakers are a little concerned about the economic consequences of all of this tightening, most notably the repeated references to weakness in the economy.
Higher bond yields were also mentioned as something the ECB is closely monitoring, as well as the impact of past tightening as it works through the system. The economic data between now and December will be key, with the projections then potentially laying the groundwork for the debate around rate cuts in 2024.
The euro was quite lively between the announcement and the press conference but it’s clear that the central bank is not entirely sure where things stand currently and what the next steps are, and the moves in the currency reflect that.
Ultimately, it all comes down to the data between now and the December meeting at which point we may get forecasts that enable the ECB to at least discuss when rate cuts could be appropriate. That may seem unlikely now but the economy is clearly struggling and so it’s only a matter of time.
Another failure to break higher
The euro has declined once more from its highs against the pound after failing to capitalize on brief moves above that key resistance zone.
Source – OANDA on Trading View
Is a second failure a sign that the rally has run its course and a sustained breakout isn’t going to be forthcoming? Not necessarily but it does suggest there is significant resistance at this level.
It also sets up the prospect of a small double top, with the neckline coming around Tuesday’s lows, which could lead to further declines in the short term if that level – 0.8683 – is broken.
Of course, nothing is guaranteed but if that’s followed by a break of the rising trendline, it could be quite a bearish signal after a strong run higher over the last couple of months.
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