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Eurozone Economy Hangs on the ECB’s Next Move

The euro zone economy is dependent on the European Central Bank (ECB)'s next move after reaching a tipping point between easy monetary policy and inflation. The ECB's rate forecast is 0 percent at the time of writing, while inflation rose to an annualized 8.6 percent in June.

The central bank appears to be aware of the risks and is likely to raise interest rates 0.25 to 0.50 percent for the first time in 11 years. The ECB's monetary policy meeting will take place tomorrow, Thursday 21 July.

The EUR has strengthened on speculation that the ECB will opt for the more hawkish option of a 0.5 percent rate hike, but there is still a long way to go after months of weakness against the USD. It is reasonable to expect that unless the ECB takes decisive action, the trading market could lose confidence and the EUR could see another sell-off.

As the ECB went from pigeon to eagle, only the Bank of Japan (BoJ) kept flying the dovish monetary policy flag of the G7 countries. Unless, of course, the BoJ surprises with a July rate decision. The Bank of Japan meets on July 21, the same day as the ECB. The JPY currency pair can move if there is an unexpected movement from the BoJ.

In other trading news, the UK releases Consumer Price Index (CPI) data for June this morning. The benchmark is expected to rise from 9.1 percent to 9.3 percent, but the bottom line is 9.4 percent. This could raise expectations for another rate hike by the Bank of England.

The Bank of Canada today released its latest CPI results for June. Inflation is said to have risen to 6.7 percent on an annual basis from the previous 6.1 percent.

In earnings news, the green mega car maker Tesla released its second quarter results today. Stocks have experienced significant turbulence as Elon Musk's controversial Twitter acquisition played out in the media. The COVID-19 barrier sweeping across China's auto industry has not helped the problem. In addition, the conflict in Ukraine has pushed up commodity prices, which may have an impact on earnings.

These adverse economic and geopolitical forces are thought to have slashed Tesla's sales for the period.

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This material does not contain, and should not be construed as, investment advice, investment recommendation, offer or solicitation of any transaction in any financial instrument. Please note that such trading analysis is not a reliable indicator of current or future performance as circumstances may change over time. Before making any investment decisions, you should seek advice from an independent financial advisor to ensure you understand the risks.