EUR/USD Closes the Week at the Lows, As We Await the ECB Decision Next Week
With the data from Europe continuing to reveal a significant economic slowdown in the Eurozone and the FED not yet turning dovish, EUR/USD continues to trend lower for more than a month. The price dropped below 1.08 for the first time since early June and despite the occasional bounce, sellers remain in control.
They pushed the price below the 200 SMA (purple) on the daily chart this week, breaking below the bottom line of the bullish channel as well. This is a considerable breakout, although the next target will be 1.0630s which was the latest low. If sellers manage to push below that zone, then we will have a lower low, thus breaking the bullish pattern of higher lows.
The price closed near the lows for the week, as we head into the ECB meeting next week. The odds of a 0.25% rate hike by the ECB are estimated at around 36% at the end of the week. This suggests that traders are not entirely convinced that there won’t be a rate hike, but they also don’t see it as a highly likely outcome. The situation appears to be somewhat balanced in terms of expectations.
One reason for this uncertainty is that rate pricing hasn’t changed significantly in the past week. Traders seem to be grappling with confusion regarding the ECB’s upcoming decision. The central issue for the ECB is the delicate balancing act it faces. On one hand, there are concerns about inflation, but on the other hand, there’s a risk of overdoing it with another rate hike.
Adding to the complexity is the fact that the euro area economy has shown signs of a slowdown, with Q2 conditions not meeting expectations. Additionally, there is a noticeable decrease in loan demand, and there are worries about a potential credit crunch looming. While it hasn’t fully materialized yet, indications point towards tighter credit and financial conditions. Another rate hike could exacerbate these challenges.
Furthermore, if the ECB chooses not to hike rates and economic conditions worsen significantly in the coming months, it could become more challenging for the central bank to convince markets that conditions are suitable for further tightening. This could be perceived as a missed opportunity and potentially hurt the Euro even further. In this complex scenario, it’s possible that ECB members may have differing views during and after the meeting.
EUR/USD Live Chart
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