EUR/USD can test 1.08 after ECB

The EUR/USD pair is trending downwards, currently trading at 1.0853 this Thursday, amid growing expectations that the European Central Bank (ECB) will cut interest rates in its upcoming meeting today.

EUR/USD can test 1.08 after ECB

This development places additional pressure on the euro, with forecasts suggesting a reduction of 25 basis points due to slowing economic growth and rising challenges within the eurozone. Such a cut is likely to exacerbate the euro's weakness as the region’s accommodative monetary policies continue to weigh it down against the stronger U.S. dollar.

In contrast, the United States is poised to release its retail sales data for September, which is anticipated to show a 0.3% increase, potentially reinforcing the strength of the U.S. dollar. With the U.S. economy continuing to outperform the slowing European market, I believe that the divergence in monetary policies between the ECB and the Federal Reserve will push the EUR/USD pair to new bearish levels. In this environment, the euro may keep weakening until we see signs of stability in the European economy or a shift in U.S. monetary policy.

Currently, the EUR/USD pair is reflecting significant weakness, having approached the 1.0850 level today. I believe this decline is not just a temporary fluctuation but indicative of an ongoing downward trend driven by several fundamental factors. The increasing strength of the U.S. dollar is clearly pivotal in this movement, making it crucial to monitor upcoming economic and political developments closely.

All eyes are on the ECB's monetary policy meeting scheduled for today, where a third interest rate cut this year is expected as part of efforts to stimulate economic growth in the eurozone. However, I think this cut will only add pressure on the euro against the resilient dollar. The dollar's ongoing strength, bolstered by the Federal Reserve's policies, suggests that the euro will face significant challenges.

This is particularly true following the Federal Open Market Committee's (FOMC) unusual decision to cut the interest rate by half a percentage point in September, highlighting concerns about inflation and economic growth. Comments from Governor Christopher Waller indicate that while the Federal Reserve expects future rate cuts, they will occur at a more gradual pace, reflecting worries about the continued strength of the U.S. economy. This, in turn, will lend further support to the dollar and intensify the difficulties facing the euro, thereby reinforcing the downward trend of the EUR/USD pair and increasing the likelihood of declines toward levels near 1.0800.

Eyes on Eurozone inflation

Additionally, weaker-than-expected inflation in the eurozone is another factor exerting pressure on the euro. If the ECB does not provide clear signals to support the euro's stability, we could see further declines. Recent statements from ECB President Christine Lagarde suggest the bank is attempting to maintain its position amid challenges, but growing concerns about economic conditions may require swifter action.

Overall, the trend for the EUR/USD pair appears to be heading toward further declines, particularly with the focus on the ECB's monetary policy decisions and economic developments in the United States. I believe investors should brace for increased volatility in the near future, with the possibility that the pair might find support at the 1.0850 level before moving lower toward 1.0800 if economic and political pressures on the euro persist. Staying attuned to news and economic forecasts will be essential for accurately gauging the near-term direction.