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Is the euro rate cut cycle dead or is it about to get another stab?
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Hello everyone, today XM Forex will bring you "[XM Forex Official Website]: Is the Euro interest rate cut cycle dead or is it another stab?". Hope this helps you! The original content is as follows:
Thursday, October 30. The EURUSD was trading around 1.1600 before the US market opened, and the market was in the stage of reassessing the European Central Bank's monetary policy path. After the Federal Reserve cut interest rates and released a hawkish signal, the U.S. dollar index consolidated at a high level, while the euro is waiting for clear guidance from the European Central Bank's policy meeting today (21:15).
At the same time, the Eurozone’s third-quarter economic data exceeded expectations and inflation remained near the target level. These factors together shape the current market expectations for the European Central Bank’s policy stance. The market focus is on whether the European Central Bank has xmh100.completed its interest rate cutting cycle and how President Lagarde will express the future policy path, which is of key significance to the mid-term trend of the euro against the dollar.
From a macroeconomic perspective, the Eurozone economy has shown resilience beyond expectations, which has become an important basis for supporting the euro. In the third quarter, regional GDP increased by 0.2% quarter-on-quarter, higher than the market consensus of 0.1%, and also better than the performance in the second quarter. The year-on-year growth rate reached 1.3%. Although it was slightly lower than the previous 1.5%, it was still significantly better than the economic stagnation previously expected by the European Central Bank. This performance reflects the considerable resilience of the euro area economy in the face of global uncertainty. It is worth noting that although the German economy stalled in the third quarter, the broader euro area economy made up for the gap through growth in other member states, demonstrating the structural balance characteristic of the regional economy.
Inflation performance also provides support for the European Central Bank to maintain its current policy stance. The core inflation rate rose slightly to 2.4% in September, slightly higher than the previous 2.3%, but overall it remained within a controllable range near the European Central Bank's 2% target. President Lagarde after September meetingIt was clearly stated that "the deflation process is over" and emphasized that "inflation levels are where we expect them to be." This stance reflects the ECB's satisfaction with the current price stability situation. At the same time, continued easing of wage pressures provides additional assurance on the medium-term inflation outlook, giving the ECB the confidence to maintain the current policy framework.
In terms of monetary policy expectations, the market has fully digested the expectation that the European Central Bank will keep interest rates unchanged at this meeting. The main refinancing rate is expected to remain at 2.15%, and the deposit facility rate is expected to remain at 2.00%. This interest rate level is right in the middle of the neutral interest rate range estimated by the European Central Bank, and is neither too loose nor too tight. The swap market shows that the probability of the European Central Bank cutting interest rates by another 25 basis points in the next twelve months is only about 50%, and the probability of the policy rate bottoming out at 1.75% is also about 50-50. This pricing structure shows that the market is still divided on whether the European Central Bank has xmh100.completed its interest rate cutting cycle, and the xmh100.communication content of this meeting will have an important impact on this expectation.
In contrast, the Fed’s policy path presents xmh100.completely different characteristics. Although the Federal Reserve cut interest rates by 25 basis points to a range of 3.75%-4.00% as scheduled, Chairman Powell released an obvious hawkish signal at the subsequent press conference. He emphasized that "another rate cut at the December meeting is by no means a certainty" and said that "more and more voices support skipping an interest rate cut." This statement caused the market's probability of a rate cut in December to drop from near certainty to around 70%. The Fed's move reflects its cautious attitude of seeking a balance between economic resilience and inflation stickiness, and also provides support for the dollar. The divergence in the policy rhythms of the two major central banks has become a core variable affecting the trend of the euro against the dollar.
Technically
According to the 60-minute K-line chart of the EURUSD, the overall trend shows that the exchange rate rebounded near the support level of 1.1600 and once touched a low of 1.1577. The price formed a strong support near 1.1600, then rebounded to a high of 1.1668 before falling back, and is currently consolidating near 1.1606.
In terms of technical indicators, the MACD indicator shows that the difference value (DIF) is slightly lower than the signal line (DEA), indicating that the market is in a weak shock range and there may be short-term downward pressure. The current value of RSI (relative strength index) is 40.33, which is close to the oversold zone, showing a weakening of downward momentum, which may indicate an opportunity for a rebound in prices.
From a price structure perspective, the range from 1.1600 to 1.1580 forms a support band, while the 1.1660 to 1.1670 area provides strong resistance. If the price tests support further, it could test lower levels, while a break above the resistance above could lead to a return to strength.
Looking ahead
The market's focus will be on how the European Central Bank balances economic resilience with potential downside risks. If Governor Lagarde explicitly hints at a rate cut cycle in her press conferencehas ended, or shows stronger confidence in the economic outlook, EUR/USD may restart its upward trend and challenge higher resistance levels. On the contrary, if the European Central Bank expresses concerns about slowing economic growth or hints that there is still room for interest rate cuts in the future, the euro may face a new round of selling pressure. It is worth noting that the next time the European Central Bank releases economic forecasts will not be until its December meeting, which means that the market will mainly rely on verbal guidance from ECB officials in the xmh100.coming weeks to form expectations, which increases the market's sensitivity to every detail of this press conference.
At the same time, the dynamics of the US dollar cannot be ignored. The dollar index's strong consolidation following the Federal Reserve's hawkish interest rate cuts, as well as the firmness of U.S. bond yields, have set a natural limit to the upside of the euro against the dollar. The market will also pay close attention to the performance of subsequent U.S. economic data and further statements from Federal Reserve officials on the policy path in December. Changes in the degree of divergence of monetary policies between the two major economies will continue to dominate the medium-term direction of the euro against the dollar.
The above content is all about "[XM Foreign Exchange Official Website]: Is the Euro Interest Rate Cut Cycle Dead or Another Stab?" It was carefully xmh100.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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