EUR/USD dips after ECB lower rates

The euro can’t find its footing and has tumbled 2.7% in October. EUR/USD has stabilized on Friday and is trading at 1.0835 in the European session, up 0.05%. On Thursday, the euro dropped as low as 1.0810, its lowest level since August 2.

ECB cuts key rate to 3.25%

The European Central Bank didn’t surprise anybody with a quarter-point rate cut on Thursday, the first back-to-back rate cuts since December 2011. The markets had fully priced in the move and the euro responded with slight losses. ECB President Lagarde has discarded forward guidance and stressed that rate decisions will be on a meeting-by-meeting basis, but the markets smelled a rate cut, with low inflation and weak economic growth.

The rate statement was optimistic, noting that the “disinflationary process is well on track” and that the inflation outlook had improved due to “recent downside surprises” in economic activity.
The ECB has cut rates three times this year and is expected to remain aggressive. The markets expect are forecasting rate cuts of 25 basis points at each of the next three meetings.

The eurozone inflation release, made just before rate announcement on Thursday, showed inflation falling to 1.7% y/y, down from the initial estimate of 1.8% and below the 2.2% gain in August. The decline in inflation was helped by a sharp drop in energy prices. Services inflation remains high but eased to 3.1% y/y, down from 2.9% in August. The inflation report reached a milestone, dropping below the ECB’s target of 2% for the first time since July 2021.

EUR/USD Technical

• EUR/USD is testing resistance at 1.0835. Above, there is resistance at 1.0866
• 1.0803 and 1.0776 are the next support levels

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