19.03.202609:03 Forex Analysis & Reviews: ECB Meeting: What You Need to Know and How to Act

The European Central Bank is expected to maintain its interest rates at current levels today. This decision will be made against the backdrop of careful evaluation of the consequences of escalating the conflict in the Middle East, particularly the war in Iran. The inflation shock it may cause is the main factor requiring the central bank's detailed analysis.

Markets are closely observing how the ECB will respond to the growing uncertainty. The war in Iran has already led to rising energy prices, which will inevitably affect overall inflation in the Eurozone. In this situation, central banks are forced to balance the need to contain inflation with the need to support economic growth. Maintaining rates could be perceived as a cautious step, allowing time to assess the full impact of the geopolitical crisis before taking more decisive action.

Against this backdrop, the ECB is likely to adopt a wait-and-see position for now. At this stage, the main task is to assess how long and strong the inflationary pressure triggered by rising oil and gas prices will be. This will influence future monetary policy. The central bank may also monitor the reactions of other major central banks, such as the US Federal Reserve, in order to develop a coordinated approach.

According to a survey of economists, the deposit rate in the Eurozone is expected to remain at 2%, the same level since last June. Although most economists predict that borrowing costs will stay at this level until the end of the year, traders are betting on at least one rate hike in the near future. The hostilities in the Middle East heighten concerns about a potential new surge in inflation following the sharp rise in prices in 2022—a prospect that is at the forefront of the agenda for leading central banks worldwide, gathering this week.

However, the ECB is in a more advantageous position than it was at the beginning of Russia's military operation in Ukraine when oil and natural gas prices rose sharply. Nevertheless, some policymakers are already contemplating rate hikes to mitigate inflation risks, while others wonder whether the blow to economic growth may be more severe.

New quarterly forecasts are unlikely to provide any specific guidance, as most of the initial data were collected prior to the onset of American-Israeli attacks. However, a complementary scenario analysis will help assess the severity of the situation.

ECB President Christine Lagarde is sure to promise not to rush into making new decisions. Her speech is anticipated to take place half an hour after the ECB's decision.

In any case, today's decisions by the ECB are unlikely to significantly help the euro grow.

As for the current technical picture of EUR/USD, buyers now need to focus on reclaiming the 1.1490 level. Only then will they be able to target a test of 1.1525. From there, they could reach up to 1.1566, but doing so without support from major players will be quite challenging. The further target will be a high of 1.1609. If the trading instrument drops, I expect significant actions from major buyers around 1.1445. If there is no activity there, it would be prudent to wait for a new low at 1.1410 or open long positions from 1.1380.