- Investors expect the European Central Bank to cut borrowing costs by 25 bps.
- The dollar held steady after the US consumer inflation report.
- The CPI report suggested a slow monetary policy easing.
The EUR/USD outlook suggests more downside for the euro as markets anticipate another ECB rate cut later today. Meanwhile, the dollar recovered after upbeat monthly inflation figures in the previous session.
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Investors expect the European Central Bank to cut borrowing costs by 25 bps later today. However, the focus will be on messaging for future policy moves. At the moment, markets are fully expecting another rate cut in December. Meanwhile, the likelihood of a cut in October is 37%. Therefore, investors will watch to see whether policymakers are ready to cut again in October. Such an outcome would weigh on the euro.
The eurozone economy has slowed down significantly, and inflation has cooled. Consequently, there is little holding the ECB from lowering borrowing costs.
Meanwhile, the dollar held steady after the US consumer inflation report. Core inflation jumped by an unexpected 0.3% in August, reducing the likelihood of a massive rate cut in September. Meanwhile, the annual figure eased to 2.5%, a step closer to the US central bank’s target. The CPI report was bullish for the dollar as it suggested a slow monetary policy easing. With no major reports before next week’s meeting, there is a high chance the Fed will cut rates by 25 bps.
However, things might change in the future. The labor market is declining, and demand has slowed in the economy. Therefore, there is still a risk of a rapid slide. Any indications of a quick decline could renew bets for a 50 bps cut after September.
EUR/USD key events today
- ECB policy meeting
- US wholesale inflation report
EUR/USD technical outlook: Bears eying 1.0950
On the technical side, the EUR/USD price is making new lows below the 1.1050 key support level. The bias is bearish since the price trades below the SMA, and the RSI trades in bearish territory below 50.
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After breaking the previous low, the price will likely extend to the 1.618 Fib level, which sits near the 1.0950 support level. The downtrend might pause here before returning to the SMA or breaking below. However, the price might keep consolidating below 1.1050 until there is a strong catalyst.
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Saqib Iqbal
