ECB decision: 50bp rate hike is on the cards, but this week's data can be game-changing

ECB decision: 50bp rate hike is on the cards, but this week's data can be game-changing

It has been a busy start to the week for EUR/USD, which gained 100 points earlier in today but has given up almost all of these gains. In the North American session, EUR/USD is trading at 1.0384.

German CPI projected to decline

Inflation is running at a double-digit clip in the eurozone and Germany, and the ECB is keeping a careful eye on Tuesday’s German CPI for November, with a consensus of -0.2%, compared to a gain of 0.9% in October. Could this be the long-sought peak in inflation? If so, it would allow the ECB to ease up on its pace of rate hikes. The ECB was late getting into the hiking game, as Lagarde & Co. clearly underestimated the stickiness of inflation, which has hit 10.4% in Germany and 10.7% in the eurozone.

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The ECB has been aggressive and raised rates by 75 basis points in October, but the main deposit rate is at a relatively low 2.00%. The ECB has moved away from forward guidance and is relying instead on a meeting-by-meeting, data-driven approach. The markets have priced in a 50-bp increase at the December 12th meeting, but the release of German CPI on Tuesday and Eurozone CPI on Wednesday could change expectations.

After a short trading week in the US due to the Thanksgiving holiday, the markets will have plenty of US events to digest this week. The US will release GDP for Q3 and the Core PCE Price Index, the Fed’s preferred inflation indicator. The key release of the week is nonfarm payrolls on Friday, which could have a major impact on what the Fed does at the December 14th meeting. Currently, the likelihood of a 50-bp hike is about 75%, versus 25% for a larger 75-bp increase. Investors are viewing a 50-point move as a dovish pivot, which has been putting pressure on the US dollar. Still, even a 50-bp hike would set a record for yearly rate hikes of 4.25%.

EUR/USD Technical

  • 1.0359 and 1.0238 are providing support
  • There is resistance at 1.0447 and 1.0568

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ECB decision: 50bp rate hike is on the cards, but this week's data can be game-changing

Kenny Fisher

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.