ECB Rate Decision: Second Cut on the Horizon
The European Central Bank (ECB) is widely anticipated to trim borrowing costs by another 25 basis points (bps) in its upcoming meeting at 1:15 pm London Time (in about 30 minutes). This would mark the second rate cut this year, following a similar move in June and a pause in July, bringing the deposit facility rate down to 3.5%.
Easing Inflation
The ECB's actions come amidst a backdrop of cooling inflation. Eurozone inflation has retreated to 2.2%, its lowest point since July 2021. Core inflation has also softened to 2.8%. Additionally, wage growth has decelerated, and Q2 GDP growth was revised downwards to a modest 0.2%.
Dovish Stance to Weigh on the Euro?
With the Eurozone's economic picture showing signs of cooling inflation and sluggish growth, the ECB appears poised to continue its easing trajectory. The central bank is widely expected to announce another 25 bps rate cut today, aiming to stimulate economic activity.
This shift away from a wait-and-see approach aligns with the recent stabilization of inflation, further bolstering the case for a dovish ECB stance. However, it's important to note that the upcoming rate cut is largely priced in by the market.
While the euro experienced a sharp 1.5% decline against the dollar following the last rate cut in June, the current scenario may unfold differently. Nevertheless, a dovish tone from the ECB could still weigh on the euro, potentially triggering further depreciation.
Will ECB Dovishness Push EUR/USD Below 1.1000?
The recent strength of the dollar, fueled by higher-than-expected Core CPI figures, sets the stage for potential bearish pressure on the EUR/USD pair. While the widely anticipated 25 bps rate cut at 1:30 PM CEST may trigger some volatility, the real focus lies on the ECB Press Conference 30 minutes later.
EURUSD Technical Standpoint
ECB President Lagarde's remarks on monetary policy and future outlook will be crucial. If she adopts a dovish tone and hints at further rate cuts this year, the EUR/USD could break decisively below the 1.1000 level, potentially paving the way for further downside.
From a technical perspective, the EUR/USD pair is indeed navigating a precarious path within a downtrend channel. It's currently hovering near the critical support level of 1.1000, which also coincides with the 50% Fibonacci retracement level at 1.09898.
Should the pair break the support, the next potential downside target lies around 1.0940, aligning with the 61.8% Fibonacci retracement level. Traders should closely monitor price action around these key levels, as a breakdown could trigger a fresh wave of selling pressure, while a bounce of these levels might spark a short-term rebound.
Hawkish Surprise?
While the prevailing expectation leans toward a dovish ECB, it's crucial to remain open to the possibility of a hawkish surprise. If Lagarde strikes a more cautious tone during the press conference and emphasizes a data-dependent approach without committing to further rate cuts, the euro could stage a rebound.
Market uncertainty regarding the ECB's future policy path might fuel a short squeeze, potentially propelling the EUR/USD back above 1.1000 and possibly even higher.
Trade with Caution
The ECB rate decision and press conference carry significant event risk. Stay informed, manage your risk prudently, and consider adjusting your trading strategies in response to the market's reaction.
This is a market analysis, not trading advice. Past performance is not indicative of future results. Trade responsibly and do your own research.
The European Central Bank (ECB) is widely anticipated to trim borrowing costs by another 25 basis points (bps) in its upcoming meeting at 1:15 pm London Time (in about 30 minutes). This would mark the second rate cut this year, following a similar move in June and a pause in July, bringing the deposit facility rate down to 3.5%.
Easing Inflation
The ECB's actions come amidst a backdrop of cooling inflation. Eurozone inflation has retreated to 2.2%, its lowest point since July 2021. Core inflation has also softened to 2.8%. Additionally, wage growth has decelerated, and Q2 GDP growth was revised downwards to a modest 0.2%.
Dovish Stance to Weigh on the Euro?
With the Eurozone's economic picture showing signs of cooling inflation and sluggish growth, the ECB appears poised to continue its easing trajectory. The central bank is widely expected to announce another 25 bps rate cut today, aiming to stimulate economic activity.
This shift away from a wait-and-see approach aligns with the recent stabilization of inflation, further bolstering the case for a dovish ECB stance. However, it's important to note that the upcoming rate cut is largely priced in by the market.
While the euro experienced a sharp 1.5% decline against the dollar following the last rate cut in June, the current scenario may unfold differently. Nevertheless, a dovish tone from the ECB could still weigh on the euro, potentially triggering further depreciation.
Will ECB Dovishness Push EUR/USD Below 1.1000?
The recent strength of the dollar, fueled by higher-than-expected Core CPI figures, sets the stage for potential bearish pressure on the EUR/USD pair. While the widely anticipated 25 bps rate cut at 1:30 PM CEST may trigger some volatility, the real focus lies on the ECB Press Conference 30 minutes later.
EURUSD Technical Standpoint
ECB President Lagarde's remarks on monetary policy and future outlook will be crucial. If she adopts a dovish tone and hints at further rate cuts this year, the EUR/USD could break decisively below the 1.1000 level, potentially paving the way for further downside.
From a technical perspective, the EUR/USD pair is indeed navigating a precarious path within a downtrend channel. It's currently hovering near the critical support level of 1.1000, which also coincides with the 50% Fibonacci retracement level at 1.09898.
Should the pair break the support, the next potential downside target lies around 1.0940, aligning with the 61.8% Fibonacci retracement level. Traders should closely monitor price action around these key levels, as a breakdown could trigger a fresh wave of selling pressure, while a bounce of these levels might spark a short-term rebound.
Hawkish Surprise?
While the prevailing expectation leans toward a dovish ECB, it's crucial to remain open to the possibility of a hawkish surprise. If Lagarde strikes a more cautious tone during the press conference and emphasizes a data-dependent approach without committing to further rate cuts, the euro could stage a rebound.
Market uncertainty regarding the ECB's future policy path might fuel a short squeeze, potentially propelling the EUR/USD back above 1.1000 and possibly even higher.
Trade with Caution
The ECB rate decision and press conference carry significant event risk. Stay informed, manage your risk prudently, and consider adjusting your trading strategies in response to the market's reaction.
This is a market analysis, not trading advice. Past performance is not indicative of future results. Trade responsibly and do your own research.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.