Euro slides after ECB financial stability review

The euro is down sharply on Wednesday. In the North American session, EUR/USD is trading at 1.0510, down 0.80% on the day at the time of writing.

ECB Financial Stability Review warns of debt crisis

Financial stability reviews seldom make the headlines, unless the message is a stark one. That was the case today as the ECB’s financial stability review warned that the eurozone could face a financial crisis due to a variety of issues. The euro has responded to the pessimistic news with sharp losses.

The report noted weak growth, rising public debt and political uncertainty in the eurozone could lead to an economic downturn that would squeeze banks and hurt financial stability. The ECB also warned of the possibility of a potential bubble in stocks connected to AI, which could result in a sharp market correction. The report urged fiscal prudence in order to preserve financial system resilience in the “current uncertain macro-financial environment”.

The European Central Bank meets on Dec. 12 and there are differing opinions among Governing Council members as to the timing of another rate cut. Inflation has been falling, but it the pace fast enough to warrant a rate cut at the December meeting? Some voices have been calling for a jumbo 50-basis point cut in December, while more dovish members want to wait until early next year.

ECB Vice-President Luis de Guindos, speaking after the release of the financial stability review, said it was “crystal clear” that the ECB would continue lowering rates but this had to be done in an “extremely prudent” manner.

EUR/USD Technical

• EUR/USD has pushed below support at 1.0574 and 1.0545. Below, the support line of 1.0494 is under pressure
• 1.0625 and 1.0654 are the next resistance lines

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