Fresh ECB Rate Cut Expected
The ECB is in focus today as traders prepare to receive the bank’s September rates decision and latest outlook. Given that a further .25% cut is widely expected today, focus will instead be on the updated forecasts offered alongside the decision as well as the forward guidance given by ECB chief Lagarde. The key for traders today is establishing whether the bank is likely to press ahead with a further cut next month or hold and wait until December. If trader’s get the sense that the bank is happy to hold and assess following today’s cut, EUR could see some upside near-term as traders await fresh bearish catalysts.
Key Drivers for ECB
The recent downturn in key indicators (inflation, PMIs, labour market) should be encouraging for the bank, giving confidence in a further rate-cut today. However, data doesn’t yet seem bad enough to warrant a more aggressive approach from the bank, particularly given the boost still being felt from the Olympics. Additionally, with the Fed now looking less likely to pursue a larger cut next week, there will be less pressure on the ECB. As such, there looks to be plenty of room for the ECB to cut today then hold until December.
Inflation Forecasts
In terms of the updated forecasts, traders will be looking at inflation specifically with a view to gauging how the bank is likely to act in coming months. Any downward revision is likely to feed into a more dovish view which should keep EUR weighted lower. However, if changes are negligible, the scale of today’s reaction will likely hinge more on the content and tone of Lagarde’s guidance. If Lagarde refrains from offering much regarding the pace and scale of future easing, this could see a limited reaction altogether today. Any upward revision will likely feed into a firmer EURUSD is traders also get no signal that a further cut is likely next month.
Bearish Risks
The most bearish scenario for EUR would be a cut today, downward revision to inflation forecasts and a clear signal from Lagarde that the bank will press ahead with a further cut next month. Given that USD has failed to break lower on the back of the recent NFP and CPI data, EURUSD should come under decent short-term pressure in this scenario.
Technical Views
EURUSD
The breakout rally in EURUSD has stalled for now atop the 1.1126 level with price since reversing back under the level. The key short-term pivot to watch is the 1.0937 level with the retest of the broken bear trend line there also. While this holds as support, focus is on a further push higher. Below there, focus turns to 1.0724 as the next support to watch.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.