The European Central Bank is expected to raise interest rates by 50 basis points; EUR/USD may rise further as the Fed decides to rescue the market
The market consensus expects the ECB to raise interest rates by 50 basis points
According to Reuters, although the current banking turmoil continues, the European Central Bank is expected to raise interest rates by 50 basis points at tomorrow’s interest rate decision meeting. The report said that the European Central Bank believes that the market is returning to calm, while inflation is still stubbornly high, and if it does not raise interest rates by 50 basis points at Thursday’s meeting, the credibility of the European Central Bank will be damaged. Looking back at the last meeting, the European Central Bank raised interest rates by 50 basis points, and President Lagarde specifically stated that interest rates will be raised at an agreed pace in March.
Financial markets are now betting on a 50 basis point rate hike from the ECB at its meeting tomorrow, followed by smaller hikes in the coming months. Austrian central bank president Robert Holzmann, a hawkish member of the ECB board, recently called for four consecutive 50 basis point rate hikes to rein in high inflation in the euro zone. However, the comments came before last week’s US banking crisis erupted and sparked a chain of panic.
The European Central Bank continues to hawk, and the euro finally “holds the clouds and sees the moon”?
ECB sources also said the central bank believes inflation will remain well above its 2 percent target in 2024 and slightly above the target in 2025. According to Eurostat, the initial annual inflation rate in the euro area is 8.5%.
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EUR/USD continues its recent slow uptrend, hitting a one-month high of 1.0760 earlier today. The daily chart shows that the upward channel guides the exchange rate higher, and the three moving averages support the exchange rate. The trend indicator CCI is currently in the overbought range, which may moderate the short-term uptrend. Further resistance is seen at 1.0790/1.0800 and 1.0900, while several recent lows around 1.0530/1.0540 could act as a strong support.
EUR/USD Daily Chart – March 15, 2023
IG Client Sentiment Indicator Shows Major Shift in Retail Positioning
The IG client sentiment indicator shows that nearly 44.80% of clients are net long, and the ratio of net short to net long is 1.23:1. Net longs are up 0.60% from yesterday and down 32.81% from last week. Net shorts are up 9.46% from yesterday and 52.68% from last week.
The IG sentiment indicator is often used as a contrarian indicator, with most retail investors holding net short positions suggesting that GBP/USD may rise. Net short positions have decreased compared with yesterday and increased last week. Combined with the current retail investor sentiment and the latest changes in positions, the outlook for the GBP/USD trend looks more bullish.
(Written by Nick Cawley, translated by Leona)
The US dollar bull market is in jeopardy under the Silicon Valley Bank turmoil. Is the interest rate hike ushering in an inflection point?
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