Today is the most important day of the week for EUR traders. This is because of 3 factors:
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End of Nord Stream 1 maintenance
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Expected resignation of Italian PM Draghi
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ECB rate decision
Things progressed quickly this morning and the first two factors have already played out - gas flows via Nord Stream 1 were resumed and Mario Draghi announced that he will meet President Mattarella and resign. As gas flows via Nord Stream resumed, Europe will get a chance to stock up on the commodity ahead of the winter. However, it should be noted that the pipeline is not operating at full capacity. Draghi's resignation today was largely ignored by the markets. This can be reasoned with the fact that resignation was a done deal since yesterday when major coalition parties did not express their support for the Prime Minister.
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Create account Try a demo Download mobile app Download mobile appHowever, the biggest EUR-related event of the day, and the one that is likely to result in the biggest volatility jump, is still ahead of us. ECB will announce rate decision at 1:15 pm BST and is expected to deliver the first rate hike in years. However, the scale of rate hike remains uncertain. Economists are divided between 25 and 50 basis rate hikes. Money markets currently price in 35 basis points of tightening at today's meeting. Having said that, there will be a rate surprise regardless of what ECB decides. Note that ECB is also expected to announce details of its anti-fragmentation measures.
Taking a look at EURUSD chart at H4 interval, we can see that after a brief pullback yesterday the pair resumed an upward move today. EUR got a lift after gas flows via Nord Stream 1 were resumed. However, the ECB rate decision is a big volatility event for EUR and may lead to a complete U-turn in sentiment. However, if ECB delivers a 50 basis point rate hike and accompanies it with hawkish guidance, EURUSD may rally above yesterday's highs and towards the nearest key resistance zone in the 1.0400 area, marked with the upper limit of the Overbalance structure.
Source: xStation5
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