Waiting for ECB interest rate decision | 12 September 2024

Events to watch out for today:

15:15 GMT+3. EUR - Publication of the ECB's decision on the key interest rate

15:30 GMT+3. USD - Number of Initial Jobless Claims

15:45 GMT+3. EUR - ECB Press Conference

EURUSD:

The EUR/USD pair struggled to gain momentum during the Asian session on Thursday and fluctuated in a narrow range, just above the psychological 1.1000 mark, or the four-week low reached the previous day. Traders, prefer to wait for the much-anticipated European Central Bank (ECB) meeting before positioning themselves for the next leg of directional movement.

The ECB is widely expected to cut interest rates by 25 basis points (bps) amid signs that Eurozone inflation is cooling. The bets were supported by data that Germany's consumer price (CP) index fell to its lowest level in three years in August and touched the ECB's 2% target. This in turn undermined the common currency and acted as a headwind for EUR/USD amid moderate strength in the US Dollar (USD).

The US CPI report released on Wednesday showed that US consumer prices are generally declining. However, the core CPI indicates that underlying inflation remains resilient and dashes hopes of a larger rate cut by the Federal Reserve (Fed) next week. This is underpinned by a rise in US Treasury bond yields and brings the Dollar Index (DXY), which tracks the quid against a basket of currencies, to a one-month peak.

At the same time, the markets fully appreciated the prospects of the Fed easing cycle and a 25 bps rate cut following the FOMC meeting on 17-18 September. This, along with the optimistic market sentiment, has restrained further strengthening of the safe-haven US Dollar. This should continue to provide some support for EUR/USD ahead of a key central bank risk event and warrants caution from bearish traders.

Investors may also prefer to wait for the ECB's updated economic forecasts, which, along with Christine Lagarde's comments, will have an impact on the EUR exchange rate. In addition, the publication of the US Producer Price Index (PPI) could provide fresh impetus to EUR/USD and create some meaningful trading opportunities later in the North American session.

Trading recommendation: Trade predominantly with Sell orders from the current price level

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