EUR/USD Turns to the ECB after its First Profitable Month of 2024


EUR/USD Analysis

Inflation in Europe has moderated substantially and close to the ECB's 2% target, while the economy has underperformed, under the weight of the tightening cycle that started nearly two years ago. These factors have convinced policymakers they should begin removing monetary restraint and markets expect them to slash rates on Thursday. This would mark a watershed moment, as it comes after ten hikes and would make the ECB the first of the big three central banks to cut, whereas the Fed and the BoE are reluctant.

The path ahead is far from certain though, as various officials have warned against back-to-back cuts and advocated for a data-dependent approach. Furthermore, recent inflation and wage data have showed persistence. This is unlikely to prevent the rate cut this week, but will strengthen the case for a cautious approach ahead.

EUR/USD had its first profitable month of the year and made a strong start to the week, due Eurozone's inflation uptick and bolstered market pricing for two Fed cuts. The pair has 1.0981 in its crosshairs, but we are cautious around sustained strength.

The unfavorable monetary policy has harmed the Euro this year and the ECB's lead can keep it on the ropes. As such we can see renewed pressure and a return below the EMA200 (1.0810), although catalyst would be needed for further losses, as the downside contains multiple buffers.

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The pair's trajectory will be determined by the ECB's decision and guidance, which has the potential to spur volatility and two-way action. The cut should weigh on the common currency, but such outcome is largely priced in and officials are more likely to adopt a reserved stance towards future moves.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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