Waiting for ECB interest rate decision | 06 June 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 applications for unemployment benefits

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

EURUSD:

The EUR and USD pair is strengthening around 1.0890 despite the US Dollar (USD) rebounding during the early Asian session on Thursday. The European Central Bank's (ECB) interest rate decision and President Christine Lagarde's press conference will take center stage in today's euro economic developments.

The ECB is expected to cut interest rates by 25 basis points (bps) at its June 6 meeting, reducing the main refinancing rate, margin lending rate and deposit rate to 4.25%, 4.50% and 3.75%, respectively. Financial markets had anticipated that the ECB would cut the rate by 43 bps by September and by around 60 bps by the end of the year. The divergence between the ECB and the US Federal Reserve (Fed) could put pressure on the Euro (EUR) and create a headwind for EUR/USD.

Across the ocean, speculation is mounting for the Fed's first rate cut in September as the US economy slowed in the first quarter. According to the CME FedWatch tool, traders now estimate the probability of a Fed rate cut in September at nearly 70%, up from 54.9% earlier in the week. The expectation of a Fed rate cut is likely to weigh on the US dollar in the near term.

However, the release of stronger-than-expected ISM Services Purchasing Managers' Index (PMI) data for May provided some support for the dollar. The index rose to 53.8 in May from the previous reading of 49.4, beating the market consensus forecast of 50.8. On Friday, investors will turn their attention to the US Non-Farm Payrolls (NFP) data, which is estimated to add 185,000 jobs to the US economy in May. Stronger-than-expected US jobs data could further strengthen the dollar and limit EUR/USD gains.

Trading recommendation: Trade mainly with buy orders at the price level of 1.0920. Consider sell orders at the price level of 1.0855.

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