The European Central Bank (ECB) has raised interest rates by 25 basis points, marking its tenth consecutive rate hike since July 2022 and bringing the total increase to 450 basis points. The ECB is primarily concerned about high inflation levels, both current and projected, with concerns extending into the future.
European Currencies Ahead of the Banks' Statements
2023-02-14 • Updated
On Thursday, the 2nd of February, the Bank of England will publish its report concerning interest rates and inflation data for the Eurozone. Professionals and investors anticipate that Andrew Bailey’s lead team of policymakers will likely raise interest rates to 4%; the highest in over a decade, for the tenth time in a row.
How does this affect the Forex market?
If the ECB raises interest rates, it makes borrowing more expensive, which can increase the demand for the euro and cause its value to appreciate. Conversely, if the ECB lowers interest rates, borrowing becomes cheaper, which can decrease the demand for the euro and cause its value to depreciate.
What do the charts have to say?
Considering the fundamental breakdown above, we will draw our conclusions from the outlook of price on the charts using price action.
On the weekly timeframe as seen from the chart above, EURUSD is currently keying into a key resistance area. The 200-day moving average can also be seen aligning perfectly with a trendline resistance to serve as added confluence. We can also mention the Fibonacci retracement level, and the RSI (Relative Strength Index) which is in the overbought position (above 70). All these points are at the likelihood of a continuation of the overall downtrend on the weekly timeframe.
EURGBP from the chart is trading within a rising wedge whilst trading above the moving average array. Though the direction here is not crystal clear, our expectation is that price will likely continue bullish until it rides into the induced wick of the swing high (highest high on the chart).
The price action on the EURJPY chart shows an interesting area of accumulation (inside the downward channel). The marked rectangle is an area of supply that price is likely to tap into before giving the actual bearish impulse according to the trend based on the 100- and 200- day moving averages.
This EURCAD chart has a real potential of providing some good movement. The reason for this is because of the divergence on the RSI (Relative Strength Index) in the overbought position. The 200-Period Moving Average is also a formidable area of resistance, and considering how it overlaps the weekly pivot zone, we can expect some real action shortly.
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