FX.co ★ When will the ECB raise rates? Euro at a crossroads

The decision of the Bank of Canada to start normalizing monetary policy in the face of an unfavorable epidemiological situation in the country stirred not only the Canadian dollar but also other currencies. The rise of the loonie showed how unprepared the market was for this turn of events. No one seriously expected that Canada would be the first to normalize the policy, thus bypassing the world's financial leaders. In theory, the first such step should have been made by the Federal Reserve, or the ECB.

Canada on Wednesday sowed doubts about market sentiment, which could begin to build on a possible tightening of other central banks' policies. Regulators may follow the Canadian financiers' idea. In Europe, for example, as in Canada, the situation with the pandemic is difficult, however, the macroeconomic data cannot be called terrible. Why shouldn't the ECB be next in line to normalize monetary policy.

It is possible, but not today. For the most part, the April meeting is a passing one. The regulator does not publish any forecasts, so there is no reason to change the current monetary policy settings. There will also be no clear signals allowing the euro to accelerate, as the Fed will hold a meeting in a few days.

Be that as it may, the Canadian factor and the normalization of monetary policy will put pressure on the European regulator, in which a split may occur. The "hawks" of the ECB will begin to bend their line more confidently or even more aggressively. It is possible that financiers will build some kind of springboard for the June meeting - and the euro will begin to respond with growth to the expected changes in policy.

"Market participants are already beginning to expect that the ECB will begin phasing out asset purchases in the third quarter. The current acceleration in vaccination rates in key eurozone countries is helping to ease the euro pessimism seen in the first quarter. It also eases pressure on the ECB, eliminating the need to maintain more aggressive asset purchases for a long time," MUFG analysts wrote.

In general, the strengthening of the hawkish mood of the Central Bank of Europe on Thursday may give strength to the single currency.

The EUR/USD rate went above 1.2000, as the dollar strengthened the downward movement on the decline in Treasury yields. Yesterday's recovery in the stock market also helped to improve sentiment for euro buyers and reduce demand for the safe dollar.

However, it is still difficult for the EUR/USD price to gain a foothold above the 1.2000 mark. Weak bullish momentum is observed periodically. The quotes are consolidating between 100-DMA and 200-DMA, and traders may be inclined to sell the euro on the rise.

Now it is impossible not to notice that the mood in the pair has improved slightly, and this may lead to a breakdown of the 1.2060 mark. Growth above Tuesday's close at 1.2080 is unlikely. With a sharp increase in momentum, it is possible.

Bullish sentiment for the euro remains in place for the coming weeks. Since the pair is holding in the area of short-term overbought, consolidation in the coming sessions is not excluded. However, upside potential to 1.2115 will remain as long as the euro trades above 1.1960.