Daily Market Recap – EURUSD Euro rebounds slightly after ECB meeting

In a major policy review presented Thursday, the European Central Bank decided to revise its inflation target and allow consumer prices to rise above the limits when deemed necessary.

In January of last year, the Frankfurt-based central bank embarked on its first policy review since 2003. However, the outcome had to be postponed in the wake of the coronavirus pandemic. The idea was to assess how to adapt the ECB's policies and tools to achieve its primary objective of price stability.

The ECB is currently striving to achieve a level of inflation “below, but close to, 2%”. In the future, the official inflation target will become 2 percent, with overshooting allowed.

“The Governing Council considers that the best way to maintain price stability is to aim for an inflation target of 2 percent over the medium term. This target is symmetric, which means that negative and positive deviations of inflation from the target are equally undesirable,” the ECB said in a statement.

At a press conference Thursday, ECB President Christine Lagarde said the new inflation target was “clear and easy to communicate.”

She also said, “We know that the 2% target will not be consistently met, there could be a moderate and temporary deviation in one direction or another from the 2%, and that's okay. What we are very concerned about is any sustained and significant deviation from the target, and that will require aggressive action.”

The first regular monetary policy meeting of the Board of Governors implementing this new strategy will be held on July 22.

This change in objective follows the Fed's policy and provides flexibility in monetary policy. The bank could therefore continue its accommodative policy while inflation exceeds the 2% target.

The euro dollar marked a low point at 1.1780 which led to a rebound. However, the rebound was contained by the 13-period descending moving average and thus does not negate the downtrend in effect since early June. Breaching this obstacle would allow for a breath of fresh air in the decline towards the 34-period moving average or the polarity line and the 50% Fibonacci retracement which acts as resistance on 1.2000.

(Chart Source: Tradingview 08.07.2021)

The trend, therefore, remains bearish. Failure on the 13-period EMA would endanger the support at 1.1780 and expose the euro to a return to 1.1704.

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.