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Today, the ECB holds its monetary policy meeting, and all current parameters are expected to be maintained. Let's consider how this might affect the euro/dollar pair.
The forecast assumes that the ECB's decision will be to keep all settings unchanged, including the key interest rate, which is expected to remain at 2.40%.
Why is the regulator likely to leave rates unchanged when crude oil prices are rising again, and July inflation could show an uptick? There are several important reasons. First, oil has risen but still hasn't hit the $100 per barrel mark for Brent. Yes, inflation for June stands at 2.8% and could, for example, rise to around 3.0% — a level seen before, when the ECB did raise rates. Even so, there is currently no urgent need to act. Also note that the Federal Reserve, the world's leading central bank, is also very likely to wait and watch developments, especially in the Middle East, before acting.
There is another important political reason: it will be difficult for Fed Chair K. Warsh to decide to raise rates ahead of the September midterm congressional elections, since that could reduce support for Republican candidates.
So what can we expect for EUR/USD? I believe that the ECB's decision to maintain policy, together with a lack of signals for further rate hikes and the most traded currency pair will most likely stay in the 1.1365–1.1475 range. I reckon even if it rises, it should still be sold.
Forecast of the day
EUR/USD
The currency pair is testing support at 1.1410; a break below this level could push the price down to 1.1365. A suggested sell level is 1.1404.
GBP/USD
The instrument is trading above support at 1.3355; a break below that could lead to a decline toward 1.3300. A suggested sell level is 1.3350.
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