Further Losses for the Euro After the ECB Cuts Rates as Expected

The euro made losses in most of its pairs in the aftermath of the cut from the European Central Bank (‘the ECB’) as it seemed clear from comments at the subsequent press conference that cuts will continue at least into the second quarter of next year. By comparison, the Federal Reserve (‘the Fed’) is less likely to be strongly dovish at its upcoming meetings compared to expectations last month. This article summarises recent news affecting the euro and looks briefly at the charts of EURUSD and EURGBP.

The main refinancing rate in the eurozone was lowered to 3.4% on 17 October based on good progress with reducing inflation:

1.7% for final headline annual inflation in September was 0.1% lower than the first estimate and 0.2% than the initial consensus. That’s a good sign overall for the ECB’s goals and shows that monetary loosening could even be sped up slightly. However, the ECB hasn’t committed to a particular path and stresses instead the importance of evaluating all relevant new data for upcoming decisions.

The relatively large decline by inflation from August to September has dented sentiment on the euro. The ECB now seems to be the most dovish major central bank, but this can of course change quickly depending on upcoming releases of inflation and job data. While inflation was down last month in all Germany, France, Italy and Spain, the eurozone’s largest constituent economies, it’s important to monitor food inflation in the next few months because that rose unexpectedly in September.

Euro-dollar, Daily

Euro-dollar’s decline in October has been extremely strong for a major forex pair. Only the 100 SMA has offered significant support so far. However, the price is now extremely strongly oversold, so it’s somewhat questionable based on the chart whether these strong losses will continue without a pause.

The area around $1.08 could be a noteworthy support since this was the source of August’s uptrend. Below this, the 100% monthly Fibonacci retracement around $1.07 could resist testing unless accompanied by a strong fundamental driver.

With no top-tier economic data due until GDP on 30 October, consolidation rather than continuation seems possible, but traders need to monitor news and polling for the upcoming American elections.

Euro-pound, Daily

As against the dollar, the euro has weakened in its pair with the pound too recently, but the downtrend here has been active since August. There seems to be some potential for further losses since there’s no evidence of selling saturation currently and volume is higher here than for euro-dollar compared to the average of each.

However, second and subsequent tests of important areas are usually less likely to break through. A move below 82p would be an eight-year low: since 82-83p has been tested many times unsuccessfully since December 2016, a breakout lower in 2024 is unfavourable unless there’s a big shift in sentiment or the overall picture from economic data.

British inflation for September was 1.7%, the same as the eurozone’s, and it doesn’t seem likely to push back up significantly over the next few months. Sooner or later, the Bank of England is likely to start its own extended cycle of loosening. When that happens, there’ll be less pressure on the euro here.

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.

This article was submitted by Michael Stark, an analyst at ExnessExness.