Euro surges above key resistance despite dovish ECB

Earlier today, the European Central Bank left monetary policy unchanged, with the primary refinancing rate staying at 0%.

The ECB confirmed that the Pandemic Emergency Purchase Programme (PEPP) will end in March 2022. Moreover, asset purchases under the PEPP would be conducted at a slower pace in Q1 2022, before the program's conclusion. However, the ECB said it would extend to reinvestment horizon for the PEPP to at least the end of 2024.

On the other hand, the ECB announced that the pace of monthly purchases under its pre-pandemic QE scheme called the Asset Purchase Programme (APP) would be upped to 40 billion EUR  in Q2 and 30 billion EUR  in Q3 from current levels of 20 billion EUR.

Overall, the ECB remains the most dovish major central bank, not expected to raise rates in 2022. That should keep the euro under pressure in the medium-term, although the short-term rally in the EURUSD could continue amid oversold conditions and broad USD weakness.

The pair has finally jumped above the descending trend line from June's lows, canceling the short-term bearish trend. It has also risen above the short-term triangle pattern. The short-term resistance is at 1.1360/70, and if broken to the upside, the relief rally could drive the pair to 1.15.20, which is the key resistance. 

Alternatively, failure to remain above the long-term declining trendline (currently near 1.1315) could retest the cycle lows above 1.12.