The European Central Bank’s rate decision will, without a doubt, be the main attraction of today’s session and traders will pay close attention, not only to the policy decision alone, but also to the forward guidance and projections of policymakers for the foreseeable future.
The ECB has been steadfastly slashing its policy rates over the past 12 months, shedding 225bps of both the deposit and refinancing rates as price pressures melted away, but its rate cutting streak will most likely come to an end today.
Economists project that a wait-and-see approach will be adopted by the central bank, keeping the refinancing and deposit rates still, at the 2.15% and 2% respectively, as the European Commission is amidst a critical round of trade negotiations with the United States.
The US currently imposes tariffs of 50% on EU steel and aluminium, 25% on automobiles, and 10% on other ancillary imports. More recently however, President Trump ratcheted up his threats, vowing to raise tariffs to 30% on many EU goods if negotiations fail to come to an agreement by the August 1st deadline.
A “bad” deal between US-EU, with excessively high “reciprocal” tariffs rates runs the risk of adversely impacting economic growth of the bloc, but also the reignition of inflationary pressures, which would be counterproductive for ECB’s mission.
European equity market traders appear optimistic nonetheless, after reports that the US and EU are getting closer to a “modest” trade deal, entailing a 15% US baseline tariff on EU goods and possible exemptions being considered for pharmaceutical products, alcohol and automobiles.
Technical Analysis
EURUSD Chart – Euro rises near 4-year highs once again as markets remain optimistic about an EU-US trade deal
Resistance: 1.1810 (R1), 1.1900 (R2), 1.2000 (R3)
Support: 1.1700 (S1), 1.1580 (S2), 1.1450 (S3)
