ECB Cuts Rates

EURUSD remains little moved on the back of the ECB rate-cut yesterday. Despite reducing rates for the first time in five years, there was very little reaction given that, firstly, the move was very well signalled and that, secondly, there was very little in the way of forward guidance.

Market Reaction

Traders had been expecting the rate cut yesterday (now at 3.75% from 4% prior) and were looking to the bank’s forward guidance to outline a likely rate path over the remainder of the year. However, with the ECB refraining from committing to a path on rates and Lagarde keeping her cards very close to her chest, there was little for traders to go off.

Slow Rate Increase Expected

Commenting on the decision, ECB chief Lagarde noted that the inflation outlook had improved considerably but there was still work to be done. In line with this assessment, Laragde noted that rates would be kept in sufficiently restrictive territory for as long as needed and said the bank was not pre-committing to a particular rate path.

Inflation Remains Key

Lagarde’s comments on inflation and the bank’s reluctance to commit to a rate path have been interpreted as more on the hawkish side. As such, traders are not expecting a follow up cut in July and instead foresee a gradual path on rates heavily influenced by how inflation develops in coming months.

US Jobs Due

Looking ahead today, EURUSD will be heavily driven by the latest US jobs data. Any fresh weakness should see the pair rise as USD comes off while an unexpected upside reading should fuel some rebound in USD near-term.

Technical Views

EURUSD

For now, the pair remains just below the 1.0937 level resistance with the bull channel highs sitting just above. This remains the key area for bulls to break, with a topside move opening the way for a test of 1.1126 above. To the downside, 1.0724 is the key support to monitor. 

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