Daily Market Recap – EURUSD ECB expected to maintain asset purchases

The EURUSD is trading in the balance as it awaits the ECB on Thursday. Market participants are awaiting details on the amount of asset purchases as inflation rose above the ECB's “close to but below 2%” target in May.

However, the ECB is expected to maintain its current pace of asset purchases under the Emergency Pandemic Purchasing Program (EPPP), despite a likely upward revision of its growth and inflation projections.

The central bank is firmly focused on maintaining easy financing conditions and does not want to disrupt the recovery with a rebound in bond yields. An unwarranted tightening of funding conditions, due in part to the rise in US bond yields earlier this year, prompted the ECB to accelerate the pace of its asset purchases in March.

The ECB is expected to maintain an accommodative monetary policy for several more years as investor and ECB inflation expectations are still below the central bank's target.

In March, the ECB forecast inflation (HICP) to rise sharply this year, from 0.3% in 2020 to an average of 1.5% in 2021, peaking at 2% in the fourth quarter of the year, then slowing to 1.2% in 2022 before accelerating to 1.4% in 2023.

Economists polled by Reuters also expect inflation to peak at 2% at the end of the year and then remain stable, below the ECB's target in 2022.

In terms of technical analysis, the outlook for EURUSD remains bullish despite its recent consolidation below its February resistance at around 1.2250. The outlook would turn bearish again in the near term if the EURUSD were to break back below the 20-day moving average channel currently at 1.2160.

(Chart Source: Tradingview 09.06.2021)

In the past, a breach of the middle bound usually preceded a continuation of the correction to the opposite bound. A return to 1.2050 would then be expected. A breach of the resistance at 1.2250 would strengthen the bullish outlook and pave the way for a continuation of the uptrend to the January high at around 1.2350.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.