EURUSD Rallying Ahead of ECB Meeting

ECB on WatchOn the back of the latest hike from the Fed yesterday, focus now shifts to the ECB today. As with the Fed, the ECB is widely expected to hike rates by a further .25% today and so the bigger focus will be on the guidance issued alongside the decision and whether further tightening looks to be in store. The ECB has been consistently hawkish this year with Lagarde repeatedly reaffirming the bank’s commitment to maintaining tightening until inflation is defeated. However, many ECB members have noted that inflation is now falling and as such, the market is starting to eye an end to the bank’s tightening campaign.Expectations for TodayIn terms of expectations for today, the base case scenario is for the bank to hike rates today while leaving the door open to further hikes. However, it will be the language around potential further tightening that holds the potential to cause the most volatility. If the ECB outright signals a further hike, this should see EUR well supported near-term, particularly against USD, where rate hike expectations have dwindled. However, if the ECB notes that it will adopt a data-dependant stance, this creates more ambiguity and will likely be seen as the bank leaving room for itself to hold rates unchanged in September. In this scenario, EUR is likely to retreat near-term.Technical ViewsEURUSDThe correction lower in EURUSD saw the market breaking back under the 1.1126 level and the bull channel lows. However, the dip has found buyers with the market now attempting to get back above that area. If bulls can get back above 1.1126 and hold, focus will remain on a continuation of the broader bull trend with 1.1503 the next target to note. To the downside, 1.0785 is the key support to watch.