EUR/USD Drops to 1.0387 as ECB Rate Cut Looms & Fed Decision Nears
The EUR/USD pair remains under pressure, hovering near 1.0387, after dipping to an intra-day low of 1.0394.
Investors are on edge as they anticipate two major central bank decisions that could shape the pair’s direction in the coming days.
Federal Reserve Holds Rates, But Uncertainty Remains
The U.S. Federal Reserve is set to announce its monetary policy decision at 19:00 GMT, with markets widely expecting the central bank to keep rates steady at 4.25%-4.50%. While inflation has cooled, it remains above the Fed’s 2% target, and the labor market shows signs of stability. This cautious outlook has kept the U.S. dollar strong, weighing on the euro.
Traders are looking for any signals from Fed Chair Jerome Powell regarding future rate cuts. If the Fed hints at maintaining higher rates for an extended period, the dollar could gain further strength, pushing EUR/USD lower. Conversely, any dovish remarks could give the euro a temporary boost.
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ECB Rate Cut Could Further Weaken the Euro
The European Central Bank (ECB) is expected to cut rates by 25 basis points (bps) on Thursday, lowering the Deposit Rate to 2.75%. Markets have already priced in this move, but concerns persist about the ECB’s future policy direction.
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Traders anticipate further rate cuts, which could diminish the euro’s appeal in both the short and long term.
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Germany, the eurozone’s largest economy, is projected to shrink for a third consecutive year, driven by structural challenges and sluggish industrial growth.
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ECB President Christine Lagarde is expected to address these concerns in her post-meeting press conference. Investors will closely watch her remarks on economic growth and inflation expectations.
Adding to the pressure on the euro are fears of new U.S. tariffs under President Donald Trump’s trade policies. A proposed universal 2.5% tariff could impact European exports, further clouding the outlook for the eurozone economy.
EUR/USD Technical Outlook: Key Levels to Watch
EUR/USD has broken below its ascending channel on the 4-hour chart, indicating a bearish shift in momentum. The 50-period EMA at 1.04119 has been breached, reinforcing downside pressure.
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Immediate Support: 1.03710 – A breakdown could push the pair toward 1.03295 and 1.02793.
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Immediate Resistance: 1.04397 – A move above this level could signal a recovery.
For now, the outlook remains bearish, with traders closely watching central bank guidance for the next decisive move.
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