On Thursday, the single currency remained elevated and barely moved after the latest ECB monetary policy decision, with the EUR/USD pair trading some 35 pips above the critical 1.18 threshold. All the focus today was on the ECB meeting, which failed to bring any surprises.
ECB meets expectations
The European Central Bank left monetary policy unchanged, as widely expected, and the deposit rate was kept at -0.5%. The primary refinancing rate stayed at zero. However, **the Governing Council decided to “taper” its monthly emergency bond purchases, previously running at 80 billion EUR a month. **
the ECB said in a statement Thursday.
The emergency QE program, also known as the PEPP (Pandemic emergency purchase program), should continue until it reaches 1,850 billion EUR or until at least March 2022. Additionally, inflation is expected to exceed the 2% goal moderately only for a transitory period. The same thing as the Fed keeps saying.
Since the ECB has already started to reduce its bond purchases and the Fed is expected to do so in December, it creates a possible bullish signal for the EUR/USD pair as the respective monetary policies are diverging slightly.
From other news, US initial jobless claims improved notably in the previous week, down to 310,000 from 345,000 previously, lowering the four-week average to 339,500 from 356,000. Continuing claims also improved, but as much as expected, and dropped to 2.78 million.
Bullish breakout still valid
Technically speaking, the medium-term uptrend remains intact as the EUR/USD pair managed to defend its 500-day moving average at 1.18. Therefore, the bullish breakout from the falling wedge pattern is still valid, supported by the bullish divergence between the price and the MACD oscillator.
Bulls need to push the euro above the essential resistance of 1.19 to confirm the bullish bias. The next target would then be at the psychological 1.20 zone, where the 200-day moving average is.
Alternatively, suppose sentiment worsens, and the single currency starts to decline again. In that case, the short-term support is at the mentioned 50 DMA near 1.18, and if not held, we could see a decline toward 1.1750 in the initial reaction.