The Euro has managed to break a 4-day losing streak as we head into today’s European trading session and comes on the back of yesterday’s losses against the greenback caused by risk sentiment stemming in part from worries about the Delta variant of the coronavirus and now all eyes will be on the European Central Bank policy decision.
The ECB is widely expected to keep interest rates on hold today when they announce their decision but are expected to begin the process of reducing their stimulus program taking steps towards reducing their pandemic emergency purchase programme (PEPP) put in place during the pandemic to boost the economy.
The prediction is the European central bank will reduce their emergency stimulus program to as low as 60 billion euros a month from the current 80 billion, before continuing to reduce it before the scheme's end in March.
A reduction of the stimulus program may be linked linked to recent comments from various ECB policymakers such as Bundesbank President Jens Weidmann who is in favor of slowly trimming the Pandemic Emergency Purchase Program while the ECB’s Robert Holzmann backs the quicker tapering option.
As mentioned yesterday the prediction for a reduction in stimulus is already priced into the Euro against the US dollar and any surprises to the downside in today’s decision may see the European currency take a hit.
Some investors believe that cutting support at this early stage while the coronavirus is still not under control would undo years of stimulus which would be a dangerous prospect for the ECB which has finally been able to boost inflation to an acceptable level after years of underperforming.
As we can see on the chart, the EUR/USD currency pair has broken down through the 50-day EMA which technically is a very negative sign and now the bulls can only hope the current $1.1817 resistance level can hold up as we head into the ECB rate decision.