Along with the BOE, the ECB is also in the spotlight today. The bank's December meeting was closely watched by markets as traders were looking to see whether the bank steps up the pace of tapering. Additionally, markets were looking for a ruling on whether the bank's asset purchases program, due to end in March, will cease altogether, or whether the program will be extended.
As with the BOE, Omicron has added fresh uncertainty to the bank's outlook and flagging risks heading into next year. The ECB has long stuck to the view that the current spike in inflation will prove transitory and, whether the bank increases tapering today or not, this view is likely to be reiterated.
The expectation was that a long-running APP would remain in place following the end of the PEPP in March. The duration and scale of this program will be key. However, given the wide degree of options available, it isn't easy to estimate market impact. The longer the duration and more significant the scale of the APP will act as a weight on EUR. The shorter the duration and the smaller the scale, the impact should be relatively bullish for EUR.
EURUSD – Bullish Scenario
As with GBPUSD, given the weakness in USD, any perceived hawkishness from the ECB today could have created room for a corrective squeeze higher in EUR/USD. Price recently tested the low of the local triangle pattern, forming a bullish pin bar, hinting at reversal risks.
A breakout above the 1.1377 level will open the way for a test of 1.1527. This will also be an interesting area to watch for more medium-term short opportunities.
EUR/NZD – Bearish Scenario
EUR/NZD 's recent test of the 6.18% retracement from YTD highs has seen the market potentially putting in an interim double top. Any EUR bearishness from today's meeting might prove the catalyst for a downside break of 1.6538, opening the way for a test of the 1.5351 level and retest of the broken bear channel. Both RSI and MACD were turning rapidly lower here, supporting such a move.