Today marks the ECB day, which can introduce significant volatility into the FX markets. EUR/USD traders are eagerly awaiting answers regarding whether the ECB will conclude its hiking cycles or continue with them. While there are various potential outcomes, I personally advise caution in interpreting the initial market reactions for the following reasons:
In the event of a rate hike, the euro may initially surge higher, but it could later reverse as speculation arises that the ECB has completed its rate hikes for the foreseeable future.
Conversely, if there is no rate hike, there may still be speculation about more hawkish comments, indicating a probable hike in the next meeting. In this scenario, the euro could initially drop and then stabilize.
It's crucial to recognize that the ECB is also monitoring inflation in the US, which has been on the rise. Consequently, European inflation is unlikely to decline significantly since it remains considerably higher than that in the US. Therefore, if the ECB intends to raise rates, today would be the appropriate time in my opinion.
From an Elliott wave perspective, the overall trend remains bearish, and there might be potential for another downward wave in the near future. However, wave 4 could take the form of either a triangle or a more complex upward correction towards the 1.08 resistance level. In either case, the possibility of further downside should not be ruled out.
