EUR/USD is currently experiencing uncertainty as it hovers around 1.1000 in anticipation of the European Central Bank’s (ECB) policy decision. It is expected that the ECB will cut the Rate On Deposit Facility by 25 basis points to 3.5%. Meanwhile, the US Dollar strengthens as the latest data reveals stickiness in the US inflation, reinforcing expectations of a 25 basis points interest rate cut by the Federal Reserve in its upcoming policy meeting.
The US Dollar Index (DXY) rises to nearly 101.80, pushing EUR/USD lower during European trading hours on Thursday. The recent US Consumer Price Index (CPI) data for August showed signs of resilience, with core inflation rising as expected by 3.2% annually. This data has led traders to adjust their expectations regarding the Fed’s interest rate reduction plans, with the probability of a 50 basis points cut diminishing from 40% to 13%.
As market participants await the US Producer Price Index (PPI) data and Initial Jobless Claims for further insights, recent comments from Fed officials indicate a growing concern about job growth. In the face of these developments, EUR/USD is struggling near a three-week low as the US Dollar maintains its gains. With the ECB widely anticipated to reduce interest rates on Thursday, investors are closely watching for signals on the future trajectory of rate cuts.
The ECB is expected to lower interest rates for the second time in its current policy easing cycle as it aims to address declining Eurozone price pressures and increasing risks to Germany’s economic growth. Market speculation over the interest rate cut has intensified, particularly in light of the German economy’s contraction in the second quarter. Analysts believe that the ECB’s decision on Thursday will provide insights into the possibility of additional rate cuts in the future.
In terms of technical analysis, EUR/USD is facing a critical juncture near the 1.1000 level ahead of the ECB’s decision. The pair is currently trading at the upper line of a Rising Channel formation in the daily timeframe, with the 20-day Exponential Moving Average acting as a key resistance. Despite the uncertain outlook indicated by the 14-day Relative Strength Index (RSI), the psychological level of 1.1000 continues to hold for now, with potential downside targets at 1.0950 and barriers on the upside at 1.1155 and 1.1200.
In summary, EUR/USD is navigating through a period of volatility and uncertainty as market participants await key decisions from both the ECB and the Fed. While the US Dollar continues to strengthen on the back of resilient inflation data, the Euro remains under pressure amid concerns about the Eurozone economy. Traders will be closely monitoring the upcoming central bank meetings and economic indicators for further guidance on the future direction of EUR/USD.
