The euro has reversed directions and is back above the 1.1200 level. EUR / USD is trading at 1.1222, up 0.19% on the day.
Where is the ECB’s policy headed? That’s not an easy question, as we get mixed messages from ECB employees. Governor Christine Lagarde has pushed back against market betting of a tax hike in late 2022. Earlier this month, Lagarde said it was “highly unlikely” that the ECB would raise rates in 2022 because inflation was too low. Compare this stance with that of ECB member Isabel Schnabel, who said this week that “risks to inflation are tilted to the top”. It is unusual to hear an accepting view of the dovish ECB, and the markets allowed for a 0.10% rate increase in December 2022 following Schnabel’s comments.
ECB expects to end PEPP purchases in March
There is also uncertainty about the future of the ECB pandemic procurement program (PEPP). The bank is expected to announce at its December meeting that it will end bond purchases in late March. This stance was reiterated in the ECB protocol on Thursday, which said that based on current developments, the ECB is expected to complete purchases in March.
However, on Wednesday, ECB member Robert Holzmann said the bank could stop the program rather than abolish it altogether. Holzmann’s comments could be in response to the rise in Covid cases in Germany and other eurozone countries. The ECB will have to tread carefully while assessing the economic outlook. Covid’s spike in Germany and other eurozone countries could undermine the weak recovery, while at the same time inflation is at its highest level since 2008 and the ECB may have to reconsider its appropriate policy to contain inflation.
EUR / USD Technique
- 1.1201 is a weak support line. This is followed by support at 1.1118
- There is resistance at 1.1415 and 1.1546