EUR/USD juggles below 1.0950 ahead of ECB policy outcome

EUR/USD trades in a tight range, slightly below 1.0950, with ECB policy meeting in focus.
The ECB may not announce subsequent rate cuts.
Firm Fed rate-cut prospects have weighed on the US Dollar.

EUR/USD turns sideways in Thursday’s European session after rallying to a fresh four-month high near 1.0950 on Wednesday. The major currency pair is expected to remain quiet as investors shift to the sidelines ahead of the European Central Bank (ECB) policy meeting, which will be announced at 12:15 GMT.

The ECB is expected to leave its key rates unchanged this time as officials have been refraining from committing a pre-defined rate-cut path amid concerns over sticky inflation in the service sector, which could reverse the disinflation process. Therefore, investors will look for cues about when the ECB cuts interest rates further.

ECB President Christine Lagarde may not provide a specified rate-cut path and will emphasize the need for more data to gain confidence that the disinflation process will not stall before loosening policy further.

The ECB delivered its first rate cut in June after maintaining a restrictive interest rate framework for two years to tame hot inflationary pressures driven by coronavirus-pandemic-led stimulus. The reasoning behind unwinding the tight policy stance was the firm confidence of officials that risks to inflation and the economy are finely balanced and price pressures will return to the desired rate of 2%.

Currently, financial markets expect that the ECB will deliver two more rate cuts this year. The ECB is also expected to deliver its next rate-cut move in September.

Daily Digest Market Movers: EUR/USD turns sideways while US Dollar remains fragile

EUR/USD consolidates near 1.0950 ahead of the ECB policy outcome. The near-term outlook of the shared currency pair remains firm as the US Dollar (USD) remains vulnerable. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, seems fragile near a more than three-month low at 103.70.
The US Dollar could see more downside amid firm speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. Upbeat expectations for Fed rate cuts have been prompted by easing price pressures and cooling labor market conditions. June’s Consumer Price Index (CPI) report showed that annual headline and core inflationary pressures decelerated at a faster-than-expected pace. 
Fed’s Beige Book, released on Wednesday, showed that firms witnessed moderate growth and slower labor demand from late May through early July. Recent employment data also showed that the Unemployment Rate rose to 4.1%, the highest since December 2021.
Meanwhile, recent inflation figures have also boosted confidence of policymakers that inflation will return to the path of 2% target. On Wednesday, Fed Governor Christopher Waller communicated confidence over moderation in job market and inflation. When asked about rate cuts, Waller said, “I do believe we are getting closer to the time when a cut in the policy rate is warranted,” Reuters reported.

Technical Analysis: EUR/USD stays above 1.0900

EUR/USD trades sideways around 1.0950, inside Wednesday’s trading range ahead of the ECB policy meeting. The major currency pair remains firm after a breakout of the Symmetrical Triangle formation on a daily timeframe. A breakout of the above-mentioned chart pattern results in wider ticks and heavy volume.

 The near-term outlook of the major currency pair is bullish as the 20-day Exponential Moving Average (EMA) near 1.0816 is sloping higher. 

The 14-day Relative Strength Index (RSI) shifts into the bullish range of 60.00-80.00, suggesting a strong upside momentum.

The shared currency pair is expected to extend its upside towards March 8 high near 1.0980. On the contrary, a downside move below the round-level support of 1.0800 could weaken the pair.

Economic Indicator

ECB Rate On Deposit Facility

One of the European Central Bank’s three key interest rates, the rate on the deposit facility, is the rate at which banks earn interest when they deposit funds with the ECB. It is announced by the European Central Bank at each of its eight scheduled annual meetings.

Read more.

Next release: Thu Jul 18, 2024 12:15

Frequency: Irregular

Consensus: 3.75%

Previous: 3.75%

Source: European Central Bank

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