EUR/USD to Head Lower As ECB’s Lagarde Confirms the Eurozone Economic Slump
EUR/USD continues to make lower highs despite the occasional attempts from buyers, as the Eurozone economy continues to show increasing weakness across all sectors.
The EUR/USD has been trading in a range over the past two weeks, influenced by weak economic performance in the eurozone and ongoing political concerns in France. Italian Q3 GDP remained stable, but manufacturing and services PMI data showed significant contraction across the eurozone, particularly in its three largest economies. These poor figures have added to concerns about the region’s economic outlook, putting sustained pressure on the Euro.
The European Central Bank (ECB) has signaled a dovish stance, suggesting potential interest rate cuts at every meeting through mid-2025 to support the struggling economy. However, the likelihood of a larger 50 bps cut has diminished to just 8%, as markets digest recent data and commentary from policymakers. ECB President Christine Lagarde reinforced the negative outlook during her testimony to the European Parliament, highlighting the challenges ahead for the Euro and the region’s economy.
EUR/USD Chart Daily – MAs Are Acting As Resistance
On the U.S. side, the Dollar has softened recently, but this has been insufficient to offset the Euro’s weakness, leaving EUR/USD under pressure. The pair tested last week’s low of 1.0331 but rebounded to approach the 1.06 level before retreating below the 20-day SMA. This resistance capped gains, leading to a reversal and keeping the pair rangebound.
The overall bias for EUR/USD remains bearish due to weak eurozone data and dovish expectations from the ECB. Key technical levels include support at 1.0331 and resistance around 1.06 and the 20-day SMA. While the Euro is likely to stay pressured, USD softness could help limit its downside.
The ECB is expected to continue easing as Lagrde’s comments suggested yesterday, but its measured approach may prevent extreme Euro depreciation, as the odds of a 50 bps cut this month diminish. Short-term traders are watching for a breakout from the current range, while longer-term positioning may favor the Dollar unless significant improvements emerge in the eurozone economy or the Federal Reserve unexpectedly shifts its stance.
Comments from ECB President Christine Lagarde:
- Inflation Outlook:
- Inflation is expected to temporarily rise in Q4 2024.
- A decline in inflation is projected for 2025.
- Policy Approach:
- No pre-commitment to a specific interest rate path, reflecting flexibility in response to economic changes.
- Economic Growth:
- The medium-term outlook remains uncertain.
- Short-term growth is expected to weaken.
- A stronger economic recovery is anticipated in the longer term as conditions improve.
EUR/USD Live Chart
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