EURUSD Stays Below Parity Despite Hawkish ECB

ECB delivers

The ECB increased its deposit rate by 75 basis points today, from 0% to 0.75%, marking the first time European rates have been favorable in almost ten years (since July 2012), noting that “the Governing Council’s decision-making regarding future policy rates will continue to be data-dependent and adhere to a meeting-by-meeting approach.

According to the ECB, the two-tier system for compensating excess reserves is no longer necessary due to the deposit facility rate increase above zero, which called today’s action a “major step” that frontloads the transition toward a more neutral policy stance. As a result, the Governing Council decided to suspend the two-tier system by setting the multiplier to zero.

The ECB said that recent statistics show a significant slowdown in economic development in the euro area, with the economy likely to stall later in the year and the first quarter of 2023 after a recovery in the first half of 2022.

Euro cant stay above parity

Yesterday’s relief rally looks to be forgotten quickly as the euro has dropped 70 pips today, falling back below parity. It needs to jump above 1.01 to cancel the current negative sentiment decisively.

However, there is a nice falling wedge pattern on the daily chart, a bullish reversal formation, this time reinforced by the bullish divergence between the price and the RSI indicator. This could offer some support for the euro in the near future.

On the downside, the support is expected at 0.99 before the cycle lows near 0.9850, but the trend still seems bearish as rallies are sold.