How to Trade EURUSD with Upcoming ECB Rate Hike

EURUSD posted a bullish week, which may fuel the single currency ahead of Thursday’s expected ECB rate hike. 

Based on recent comments from officials, markets expect a 75 basis points increase by the ECB. 

EURUSD – Weekly Chart

eurusd weekly chart

The EURUSD pair has key targets ahead at the 1.02 and the 1.04 levels on the weekly chart, which can be a guide for traders this week. We can see a long-term descending support line in the play, hinting that recovery is due in the euro.

The ECB has been slower than other countries with its rate hikes but acted with its first increase in over a decade back in July. President Christine Lagarde and other officials hiked by 75 basis points at the most recent ECB meeting in September, with upgraded inflation forecasts of 8.1% this year and 5.5% in 2023. 

Markets are anticipating the same 0.75% increase to 2%, which would be the highest since the financial crisis of 2008-09. However, German inflation has topped 10% recently, and the EU’s headline rate has also doubled. Policymakers have been increasingly vocal about this and stressed a need for higher rates.

The ECB said it expects to continue raising rates at subsequent meetings, but likely at a slower pace than the Fed. That sounds good, but the Federal has seen inflation move lower with its efforts, and the ECB cannot sit still. Several governing council members have even said they should move the interest rate to 3%. 

If the ECB increases by another 75bps this week, it could negatively affect countries like Italy. Rising debt servicing costs were a significant factor in the recent financial turmoil experienced by the United Kingdom.

Higher interest rates will also be a headwind for a region heading for recession, with the former powerhouse Germany a leader of negative GDP trends. The ECB is expected to hike by 75 bps, but traders should be alert for the press conference and hints that there is more to come.

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