The euro slipped below the 1.1100 level against the dollar on Monday as growing expectations of a European Central Bank (ECB) interest rate cut weighed on the currency. The EUR/USD pair fell 0.44%, ending the day at 1.1036, as investors increasingly expect the ECB to lower rates by 25 basis points at its September 12 meeting. The market is also bracing for the ECB to lower its economic growth and inflation forecasts.
EUR/USD Daily Chart
Traders are cautious, anticipating that the ECB will take a more dovish approach to support the economy. Meanwhile, attention is turning to the upcoming US Consumer Price Index (CPI) report, which could influence the Federal Reserve’s next rate decision. Currently, markets predict a 70% chance of a 25 basis point cut and a 30% chance of a 50 basis point cut by the Fed.
Despite the euro’s weakness, US stocks ended Monday higher, driven by positive risk sentiment ahead of the key US inflation report. In Europe, the expectation of ECB rate cuts has led markets to price in up to 75 basis points of cuts by the end of the year.
From a technical perspective, the EUR/USD outlook remains neutral to slightly bullish. However, it’s crucial to note that if the pair drops below the September 3 low of 1.1026, it could see further declines, testing important support levels at 1.1000 and the 50-day moving average at 1.0958. If these levels are broken, the next target could be around the 1.0867/1.0858 area. On the other hand, a move above the September 9 high at 1.1091 would suggest a return to upward momentum.
As the week progresses, traders will remain highly engaged, closely monitoring key economic data, including German inflation and Eurozone industrial production numbers, as well as the US CPI report. These reports are of utmost importance as they could provide more insight into the future actions of both the ECB and the Fed, potentially driving the next move in EUR/USD.
