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EURUSD Growth in Anticipation of ECB Interest Rate Hike

10/20/2022 2:40 PM

The quotes of the EUR/USD pair are preparing to break out the resistance level of 0.9870 and update the maximum of the beginning of the month around 0.9970 against the background of the upcoming meeting of the European Central Bank (ECB), which is scheduled for October 27. Analysts believe that the regulator will raise the interest rate by 75.0 basis points to 2.00% in order to reduce the pace of record inflation, which exceeds the target by five times. This expected event makes the euro more attractive for investment, so the EUR/USD pair is likely to continue to grow with a target of 0.9970 in the mid-term.

Board member Olli Rehn expects that the ECB will begin to reduce its balance sheet (QT), amounting to about 5.1T euros, in Q1 2023 immediately after the rate reaches a neutral level around 2.00%, and this will affect the strengthening of the currency. The negative factor remains the risk of a recession in Europe, which, according to analysts, may occur in the next 12 months with a probability of 70.0%. In the long term, this can cause investors to withdraw from the securities of European issuers and, as a result, the attractiveness of the single currency for investments will fall. It is also impossible to exclude the influence of the aggressive policy of the US Fed, which plans to raise the rate by 75.0 basis points at the next meeting on November 2.

Therefore, it can be assumed that before the US Fed meeting, the single European currency will continue its corrective growth with a target at 0.9970. The future fate of the asset will depend on the subsequent decisions of regulators.

The long-term trend remains descending. Currently, an upward correction is developing, the target of which is the 0.9870 level test. If this mark is broken out, it is likely that buyers will reach the next strong resistance level near the October high of 0.9970.

The mid-term trend is downward. This week, the key resistance of the trend 0.9865–0.9843 was tested. After reaching the area, a downward movement followed. If this movement develops, then probably the minimum of last week in the area of 0.9635 will be updated. If the price manages to consolidate above the 0.9865–0.9843 area, then the mid-term trend will change to an upward one. In this case, the new target for purchases will be target zone 2 (1.0077–1.0055).

Resistance levels: 0.9870, 0.9970, 1.0165. | Support levels: 0.9661, 0.9559.

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