Despite the somewhat surprising tone of ECB Chair Christine Lagarde and her colleagues, the euro was not bolstered significantly by the newly adopted hawkish rhetoric of the ECB. The underlying bearish sentiment on the EURUSD thus remains prevalent. Read more about it from our newest analysis of the pair.
At its highly anticipated September policy meeting, the Governing Council of the European Central Bank expectedly decided to maintain the near-negative Main Refinancing Rate unchanged at 0.00 per cent.
The Council also hinted at a potential dialling back of the pace of purchases under the Pandemic Emergency Purchase Programme (PEPP). The total envelope of the programme remains at 1850 billion euros; however, this newly adopted hawkishness of the ECB underscores the recent economic developments in the Eurozone.
The decision bolstered the EURUSD pullback from earlier today, though the broader sentiment remains ostensibly bearish. As shown on the 4H chart above, the downtrend takes the form of a descending channel; as well as a 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.
The underlying pullback can therefore be viewed as the second retracement leg (3-4), taking place before the next reversal. The strength of the pullback (retracement) is underpinned by the moderately recouping bullish momentum, as represented by the MACD indicator.
Presently, the 200-day MA (in orange) is drawing near the upper boundary of the channel, while the 100-day MA (in blue) is about to converge with the 23.6 per cent Fibonacci retracement level at 1.18511. This means that the bearish reversal is likely to occur from either of the two groupings.
ECB's hawkish-sounding rhetoric stems from the underlying inflationary developments in the Eurozone. As was observed in the monetary policy statement:
"Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters."