The ECB Is Not Obliged to React

[Ben Graham]

Yesterday's inflation data for the eurozone prompted a series of comments from European Central Bank officials. However, in the currency market itself, the released report was largely ignored."The European Central Bank is not obliged to react to small deviations from the 2% inflation target. It should keep its powder dry so it can respond when there is a real need to change policy," said Governing Council member Martin Kocher in an interview.

As a reminder, according to yesterday's data, consumer prices in the eurozone rose by 2.2% in November compared to the same period last year, higher than the 2.1% average level in the previous month and slightly above the median economist forecast. Core inflation, which excludes volatile food and energy prices, remained unchanged at 2.4%.

After the sharp surge following the pandemic, inflation in the euro area's 20 countries has remained near the 2% target for nine months, while underlying pressure is also easing, though more slowly.

"We cannot and should not engage in micromanagement through monetary policy," Kocher said. "We are seeing very high valuations in financial markets, especially in the U.S., where AI-related stocks are rising. Therefore, ensuring financial stability is important." Kocher also noted that European banks are very stable, but problems could spill over from the U.S., which calls for a certain level of caution.

Kocher emphasized that the ECB must remain flexible and avoid rushing into further rate cuts despite signs of favorable inflation. Premature action, in his view, could weaken the bank's position and limit its ability to respond if new economic shocks arise.

In conclusion, Kocher called for vigilance and caution in monetary policy so that the ECB can effectively respond to any future challenges. He stressed that maintaining financial stability is a key priority and that the ECB must be ready to take necessary measures to protect the economy from potential risks.

It is obvious that statements of this kind clearly indicate that during the December meeting, the European regulator is unlikely to introduce any changes to its policy agenda.

Regarding the current technical picture for EUR/USD, buyers now need to figure out how to reclaim the 1.1650 level. Only this will allow them to target a test of 1.1680. From there, the price could rise to 1.1715, though doing so without support from major market players will be quite difficult. The furthest target is 1.1730. If the instrument declines, only around 1.1625 do I expect any serious action from major buyers. If no support appears there, it would be best to wait for a renewal of the 1.1590 low or consider opening long positions from 1.1560.

Regarding the current technical picture for GBP/USD, pound buyers need to reclaim nearby resistance at 1.3250. Only this will allow them to target 1.3270, above which a breakout will be quite difficult. The furthest target is the 1.3300 level. If the pair falls, bears will attempt to regain control of 1.3225. If they succeed, a breakout of that range will deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3203 low, with the prospect of reaching 1.3170.

The material has been provided by InstaForex Company - www.instaforex.com