- EUR/USD extends losses after breaking 1.1100 support, with ECB expected to cut rates by 25 bps on September 12.
- Market sentiment remains cautious as analysts anticipate the ECB will revise down its economic growth and inflation projections.
- This week’s US CPI report could influence Fed rate cut expectations, with a 70% chance of a 25bps cut and a 30% chance of a 50bps cut.
The Euro posted losses of 0.44% on Monday as the common currency extended its decline after breaking the support level of 1.1100. Expectations that the European Central Bank (ECB) will cut rates at the meeting on September 12 weighed on the EUR/USD, which is trading at 1.1036, virtually unchanged at the start of the Asian session on Tuesday.
EUR/USD falls 0.44% as markets brace for ECB rate cuts and key US inflation data.
Wall Street closed Monday in the green, reflecting an optimistic appetite for risk ahead of a week that will include the release of inflation data in the United States. Across the pond, most analysts expect the ECB to cut rates by 25 basis points.
BBH analysts expect the ECB to maintain its cautious easing stance that will “keep policy sufficiently restrictive for as long as necessary” and remain data-dependent.
The ECB is expected to unveil its economic projections, which include a downward revision of economic growth and inflation. Money market operators continue to price in cuts of 50 to 75 basis points by the end of the year.
On the data front, the Eurozone (EU) economic calendar will include German inflation data on Tuesday, followed by EU industrial production on Friday.
New York Fed consumer inflation expectations remained anchored at the 3% threshold on the US front. Looking ahead to the week, the US Consumer Price Index (CPI) for August is expected to fall towards the Fed’s 2% target.
If the CPI falls, the chances of the Fed cutting its rate by 50 basis points increase. Otherwise, gradual adjustments to monetary policy are already priced in.
The CME FedWatch tool shows that the odds of a 25 bps rate cut are 70%, while for a 50 bps cut they are 30%.
EUR/USD Price Forecast: Technical Outlook
From a technical standpoint, EUR/USD remains neutral to bullish biased, although a decisive break below the September 3 low of 1.1026 could open the door for further declines. Key support levels such as the 1.1000 mark will be exposed, followed by the 50-day moving average (DMA) at 1.0958. A break of the latter and the pair could test the confluence of the 100-day and 200-day moving averages around 1.0867/58, before falling to the August 1 low at 1.0777.
For a bullish resumption, buyers need to lift the pair above the September 9 high at 1.1091.
Euro FAQs
The Euro is the currency of the 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world, behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.
Another important output for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
