The European Central Banks paused its aggressive tightening cycle in October, in a watershed decision, after ten consecutive hikes amounting to 450 basis points. Although refraining from offering forward guidance, policymakers have hinted at peak rates, saying that current interest rates can help restore price stability, if "maintained for a sufficiently long duration" . The poor state of the economy and the significant deceleration in inflation, with preliminary October CPI falling below 3%, could help officials stay on the sidelines.
This shift in the ECB's stance has helped GER30 into a turnaround over the past two weeks, trying to stop its three-month slump. It now tests the critical 38.2% Fibonacci of that drop and the 200Days EMA (blue line), which would bring the 16K mark in the spotlight, although fresh catalyst would be required for challenging it.
These levels however, along with the falling daily Ichimouku cloud and the October high, create a difficult technical path for the index , which can stop the recovery and renew pressures. Furthermore, the ECB's dovish shift is partly a result of Eurozone's economic slowdown. Germany in particular shrunk by 0.1% in the third quarter according to preliminary data and the IMF expects it contract by 0.5% this year . There not much to cheer in this outlook, which could limit the positive effect of the monetary policy shift. As such, GER30 is in risk of sub-15,000 moves and a rejection of the 38.2% Fibonacci would create scope for a breach of 14,506.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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