EUR/USD – Bearish developments ahead of the European Central Bank meeting

The ECB meeting on Thursday is not likely to be as straightforward as many have seemed over the last year.

Even before we get to the new economic forecasts and what that means for monetary policy over the remainder of the year, there isn’t much of a consensus in the markets around what the decision on interest rates will be tomorrow.

Markets are pricing in a little more than a 60% chance of another rate hike – probably the final one – and almost a 40% chance of a pause, with around a 70% chance that one will still follow at one of the upcoming meetings.

ECB Interest Rate Probability

Source – Refinitiv Eikon

How are markets positioned?

Obviously, with every currency pair, both components have to be taken into consideration but it’s interesting that EURUSD slipped below the 200/233-day simple moving average band a couple of weeks ago and has neither recovered or accelerated lower.


Source – OANDA on Trading View

Perhaps this is a result of some apprehension ahead of the ECB meeting – and today’s US inflation report which triggered some initial volatility but didn’t ultimately swing the pair one way or another – or some slightly dovish positioning in case the ECB opts for its first pause?

That should become clearer tomorrow but with the pair already seeing some resistance around the prior lows – 1.0765 – a dovish outcome could see the pair accelerate lower. A significant move (initial volatility can produce big swings that don’t turn out to be significant) below 1.07 and the most recent lows would be very interesting and may suggest that dovish, and bearish, outcome has occurred.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.