At its meeting yesterday, the European Central Bank cut interest rates by 25 basis points, as expected. Following this decision, the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility fell to 2.9%, 3.15% and 2.75%, respectively.
The major points of the ECB's monetary policy statement:
“Inflation is developing broadly in line with projections and is set to return to the ECB's 2% medium-term target in the course of this year.”
“Recent interest rate cuts are gradually making new borrowing less expensive for firms and households.”
“At the same time, financing conditions continue to be tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to the stock of credit, with some maturing loans being rolled over at higher rates.”
“The economy is still facing headwinds but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time.”
According to these statements, the ECB has taken a more cautious stance on the further policy easing. From a carry-trade perspective, the US dollar, with the Fed 4.5% interest rate, seems more appealing than the euro, with the ECB 2.9% interest rate.
The EURUSD currency did not react immediately to the ECB rate decision and monetary policy statement. The pair is now trading down slightly around 1.0400.
At the same time, from a technical point of view, EURUSD has formed a bearish head-and-shoulders pattern, and the target for breaking below the neckline of this pattern is the level of 1.0330.
The overall recommendation is to sell EURUSD.
Profits should be taken at the level of 1.0330. A Stop loss could be set at the level of 1.0470.
The volume of the opened position should be set in such a way that the value of a possible loss, fixed with the help of a protective Stop loss order, is no more than 1% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
