- The EUR/USD is holding steady ahead of the ECB interest rate decision.
- Analysts expect the bank to leave interest rates unchanged and pledge to do more.
- Decision comes as the number of coronavirus cases continue rising.
The EUR/USD price is up slightly as traders digest the surging number of Covid-19 cases in Europe and the new restrictions. They are also waiting for the ECB interest rate decision. It is trading at 1.1750, which is higher than this week’s low of 1.1718.
Tough time for Europe
For months, Europe has recorded significant strides in dealing with the coronavirus pandemic. At some point, many countries even partially started to open their borders.
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However, recently, the situation has changed and the region is now in the defensive. As winter kicks-off, many countries, including France, Germany, Italy, Spain, and Belgium have started to report surging cases.
Yesterday, Germany confirmed more than 14,000 new cases, which is the biggest number ever recorded. France recorded more than 33k cases, bringing the total to more than 463k. Spain too confirmed more than 18,000 cases.
Worse, health experts believe that the situation will get worse mostly because of the overall cold season. Also, they attribute this to the fact that governments are reluctant to introduce full-scale lockdowns as they did in the first quarter.
For example, in a statement yesterday, Angela Merkel said that the government would require all restaurants and bars to close until the end of the month. In exchange, the government will reimburse them more than 10 billion euros. Also, in France, Macron has only announced partial lockdowns.
As such, with no vaccine in sight, there is a possibility that the region will go through another recession in the fourth quarter.
ECB decision ahead
The EUR/USD will react to the ECB interest rate decision that will come out later today. Analysts polled by Reuters expect that the bank will leave interest rate and its quantitative easing program unchanged. That will be in line with what the Bank of Japan did today and what the Bank of Canada did yesterday.
Notably, analysts expect Christine Lagarde to reassure the market that the bank was willing to do whatever it took to support the economy. Some of the measures it still has include expanding the amount of asset purchases and even cutting rates further.
To deal with the pandemic, the bank has slashed interest rates, launched a 1.35 trillion QE program, and agreed to accept bonds as collateral even for fallen angel firms.
She could also follow in Fed’s footsteps and say that the bank will not hike rates even when inflation rises above 2%. Still, with the economy being in a “lowflation” trap, this will not have an immediate effect.
The EUR/USD will also react to German employment data and inflation data and the Eurozone’s consumer and business confidence data.
EUR/USD technical outlook
The four-hour chart shows that the EUR/USD pair is slightly higher than this week’s low. It has also found strong resistance at the 61.8% Fibonacci retracement level. Also, it is concluding the fourth wave of the Elliot wave pattern and in the middle line of the Donchian channel. Therefore, I suspect that the pair will resume the downward trend as part of the fifth Elliot wave. Get started with our free forex trading courses.