EUR/USD experienced a decline on Thursday following the European Central Bank’s (ECB) decision to maintain interest rates. Traders were still processing the “hawkish” rate cut announced by the Federal Reserve on Wednesday, which kept EUR/USD below the 1.1600 mark. As of now, the pair is 0.30% lower, standing at 1.1565.
ECB’s Lagarde says policy is ‘well placed’ as risks are mitigated
The ECB decided to keep all three interest rates steady: the deposit facility rate, the key refinancing rate, and the marginal lending rate, remaining at 2.00%, 2.15%, and 2.40%, respectively. ECB President Christine Lagarde stated that monetary policy is in a “good position” due to reduced economic risks, and signs of resilience are appearing in the euro zone’s economy.
She also mentioned that trade dynamics between Europe and the U.S., a potential easing in Middle Eastern tensions, and a truce in trade talks between China and the U.S. have lessened risks to economic growth.
The ECB is anticipated to release an economic outlook through 2028 during its December meeting. If some policymakers foresee inflation dipping below the ECB’s target, it could justify discussions of further easing in the next meeting.
In the U.S., the Federal Reserve opted for a 25 basis point rate cut and indicated a potential pause in its easing cycle, pointing to disagreements within the Federal Open Market Committee (FOMC). Chairman Jerome Powell also noted that the Fed is analyzing state-level unemployment claims data and highlighted that the job market appears to be in better shape than anticipated.
Daily market fluctuation factors: Broad USD strength weighs on euro
- The US Dollar Index (DXY), which measures the performance of the U.S. dollar against six currencies, rose by 0.37% to 99.50.
- Lagarde expressed contentment with the euro zone’s economy growing by 0.2% in the third quarter.
- The ECB’s statement revealed an inflation forecast near 2%, noting it is not committing to any specific interest rate trajectory. “Despite the challenging global environment, the economy continues to grow,” the ECB remarked.
- In a 10-2 vote, the Fed lowered its benchmark interest rate by 25 basis points, setting it between 3.75% and 4%. The decision wasn’t unanimous, with one member advocating for a deeper 50 basis points cut and another voting to keep rates unchanged.
- Powell indicated at a press conference that further interest rate reductions at December’s meeting are not guaranteed, which was somewhat surprising for the markets.
- The primary focus for the Fed remains the labor market. Powell mentioned that despite limited official statistics, state-level jobless claims suggest the job market is stable.
- He added that several FOMC members believe interest rates are at or near a neutral level, indicating a balanced monetary policy considering current economic conditions.
- Positive developments in U.S.-China trade negotiations provided a boost to the dollar after President Trump described his meeting with Chinese President Xi Jinping as “great.” He noted that China has agreed to restart soybean purchases, leading to reductions in tariffs on fentanyl and certain Chinese goods. Trump also stated that the rare earth issue was settled, facilitating discussions on chips with China.
Technical outlook: EUR/USD turns bearish, with sellers looking at 1.1500
EUR/USD continues its downward trend after falling below 1.1600, with sellers monitoring for further declines. The bearish momentum appears to be strengthening, as indicated by the Relative Strength Index (RSI), which has dropped to a lower level.
The immediate support for EUR/USD is at 1.1550, and following that, the low on October 9th of 1.1542 comes into play. If it breaks above that point, it could then target 1.1500, followed by the August 1st low of 1.1391.
On the other hand, should EUR/USD rise above 1.1600, it might consolidate within the range of 1.1600-1.1650 until buyers push past the latter to aim for the 1.1700 figure.
