Euro in calm waters as data calendar light

The euro is showing little movement on Monday. In the North American session, EUR/USD is trading at 1.0890, down 0.07%.

Will ECB pause again?

The European Common Bank meets on Thursday for the first policy meeting of the year. The ECB has paused the benchmark rate at 4.0% for two straight times and looks likely to hold rates again this week. The markets remain bullish on the central bank doing a lot of rate cutting this year and has priced in 140 basis points in cuts starting in April.

It was just over a month ago that ECB President Lagarde pushed back hard against expectations of rate cuts, saying that inflation could rebound and that there was no discussion of rate cuts at the December meeting. Fast forward to the Davos summit last week, and Lagarde, perhaps reluctantly, stated that a rate cut was likely in the summer. The markets are still looking at an initial rate cut in April, although several ECB Governing Council members said last week that the markets were getting ahead of themselves.

As is the case with the Federal Reserve, there is a significant discrepancy between the ECB and the markets regarding the rate path for 2024. Still, Lagarde is now on the rate-cutting bandwagon and investors will be keeping a close eye on the ECB rate statement and Lagarde’s follow-up press conference at Thursday’s meeting.

With the US economy continuing to post solid numbers, the markets have pared expectations for a rate cut in March. Just one week ago, the probability stood at 78% but that has fallen to 48% at present, according to the CME’s FedWatch tool. The Fed has pushed back against market expectations of six rate cuts this year, starting in March. Last week, Atlanta Fed President Bostic said he did not expect rate cuts until the third quarter and San Francisco Fed President Daly said the Fed would have to be “patient” about rate cuts.

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EUR/USD Technical

• EUR/USD tested 1.0904 in resistance earlier. Above, there is resistance at 1.0962
• 1.0839 and 1.0781 are the next support levels

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