ECB Cuts Again

EURUSD is trading lower today on the back of a further .25% rate cut from the ECB. The central bank cut rates for the fourth time this year in December, with the headline interest rate now sitting at 3%, its lowest level since March 2023. Traders are widely expecting the bank to cut further in line with downward revisions to eurozone growth and inflation data. One key change that is fuelling the selling we’re seeing today is the removal of the ECB’s commitment to keep policy rates restrictive for as long as necessary. This change has been flagged as opening the door to further rate cuts and signals a clear shift in the bank’s outlook.

Eurozone Outlook Weakens

With growth and inflation forecasts revised lower, traders are now expecting a faster pace of easing next year. Indeed, the market is now expecting the ECB to cut rates further than the Fed, likely to keep EURUSD pressured lower in coming months. With US inflation rising and the Fed likely to signal a pause in easing beyond this month’s expected cut, USD looks likely to remain well bid. Safe haven flows are also keeping USD underpinned here and with geopolitical risks showing no signs of abating near-term, this dynamic is likely to remain through year-end.

Technical Views

EURUSD

The reversal lower in EURUSD has seen the market trading back below the 1.0515 level. With momentum studies weakening and price still within the bear channel, focus is on a continuation lower near-term with 10365 the next bear target. Bulls need to get price back above 1.0724 to alleviate downside risks.