Yet the Euro is killing the dollar. The world’s investors are anxiously waiting to see what announced stimulus will come out from the European Central Bank’s (ECB) first monetary policy meeting. The EUR/USD currency pair is trading at 1.1710 at the time of writing. We think that it will stop its advance, given that no interest rate hike is anticipated in the September meeting. Market analysts have been watching the news very closely, and for good reason. The ECB’s policy decisions and the US inflation data due next Thursday could both create some fireworks in this popular currency pair.
The ECB has interrupted its easing cycle in July after a series of eight successive rate cuts since June 2024. This triple-shift is nothing less than an inflection point for Eurozone economic policy. The deposit rate is maintained at 2.00%, with the main refinancing rate unchanged at 2.15%. The market will be left awaiting the ECB President Christine Lagarde’s guidance on these moves. TTF’s upcoming press conference will shine a spotlight specifically on the Transmission Protection Instrument (TPI). We’d be disappointed if she committed to doing something tomorrow. Union’s growth and stability agreement. France is in breach of the eligibility criteria set by the TPI, due to its excessive deficit.
Economic Indicators Shape Market Expectations
Recent economic indicators help illustrate the backdrop against which the ECB finds itself today on both the fundamental and market sides of things. In more considerable news, Eurostat’s flash estimate shows that Eurozone inflation rose to 2.1% in August. At the same time, core inflation dropped to 2.3%, missing expectations by two-tenths. Inflationary pressures appear to have started to moderate. This would enable the ECB to maintain its current higher interest rates without having to make further intervention.
Further, the composite Purchasing Managers Index (PMI) increased to 51.0 in August, its best reading in a year. This would be a historic bump. It proves that the Eurozone’s manufacturing sector has, as of last month, finally returned to expansion territory after three dismal years. Such warmly welcomed economic harbingers would certainly add weight to the ECB’s inclination to leave rates on hold at this meeting.
Here’s how market analysts are analyzing the technical levels for EUR/USD. Should the price manage to break above 1.1800, the bulls will likely target 1.1900 next. Conversely, a drop beneath 1.1800 would be seen as a bearish reversal, targeting a drop to 1.1600 and eventually the 100-day moving average at 1.1527.
“The easing cycle now seems to be over.” – Michael Brown, strategist at Pepperstone
Market Consolidation and Future Outlook
The EUR/USD has largely been trapped inside a largely sideways channel since the start of July, running into firm resistance near the 1.1800 level. The upcoming ECB meeting and U.S. inflation data releases could provide critical momentum for the pair, either breaking it out of this range or solidifying its current position.
Experts like Konstantin Veit from Pimco suggest that the ECB has reached the end of its easing cycle, noting that “the bar is now high to justify a new move.” This suggests that despite tentative signs of economic revival, upcoming changes in the direction of monetary policy will be well thought out.
As investors look forward to fresh guidance via the ECB, and data releases in the U.S., market players are on high alert. U.S. inflation data and central bank decisions are tightly interconnected. These factors have the potential to seriously upend investor sentiment and destabilize trading strategies.
Technical Analysis of EUR/USD
Given today’s trading conditions for EUR/USD it is essential that traders lean more towards technical analysis. This approach will greatly shape their thinking and decisions for years to come. Only breaking above 1.1800 could unlock higher targets for the bulls. Any break of this key area could send required to avoid a more bearish regime.
Since early-July, EUR/USD has struggled to maintain its momentum above this key resistance level. This ongoing battle has led to confusion and doubt among many traders. If it gives way under 1.1800, we will probably observe a fall to 1.1600. Downside from here could go as low as the 100-day moving average at 1.1527.
Traders should be on high alert during significant economic news releases as the risk of volatility is often heightened. The one-two punch of ECB meetings followed closely by important U.S. economic data releases has the potential to move price dramatically in either direction.