Yesterday, the key interest rate in the Eurozone was reduced by 0.25% to 3.50%. The marginal lending rate was cut by 0.60% to 3.90%, and the rate on main refinancing operations was lowered by 0.60% to 3.65%. The European Central Bank lowered its economic growth forecast for the current year from 0.9% to 0.8% while keeping the inflation forecast steady at 2.5%. No hints were given regarding the October meeting, but there was an implication of rising inflation towards the end of the year. Nevertheless, we expect further rate cuts at the October meeting, not by 0.50%, as mentioned yesterday, but by 0.25%.
The idea behind all this "confusion and turmoil" with the rates is that the ECB's rates will always be lower than the Federal Reserve's. However, markets remain "in the dark," and the dollar has yet to begin a strengthening trend. Related markets also rose yesterday: the S&P 500 increased by 0.75%, oil (WTI) went up by 2.96%, and gold climbed by 1.75%.
So, the euro did not reverse after the US employment data or the ECB's rate cuts. The last event left is the Fed rate cut of 0.25%, with a dovish release on the FOMC meeting on September 18th. The expectation of a double rate cut remains high at 42%. If this expectation doesn't decrease significantly by the middle of next week, there's a chance the euro will turn into a medium-term decline.
And if not? Unfortunately, the development will follow an alternative scenario: first, to the target of 1.1186 (the upper boundary of the price channel), and then to 1.1230 or higher. However, the price needs to consolidate above the already achieved level of 1.1085, and the Marlin oscillator needs to move into positive territory.
Today, the Eurozone will release industrial production data for July, which is expected to show a decrease of 0.6%. The US data is of secondary importance—declines in export and import prices are expected. For now, we are sticking to the main scenario.
In the four-hour chart, price fluctuations can be represented within a light blue descending channel, the upper boundary of which is around the 1.1124 mark. If the price moves down from the current level and overcomes the support of the MACD line (1.1048), this will be the first sign of a resumption of the downward trend. But everything will be decided on September 18.
