ECB is widely expected to implement a 25bps rate cut today, marking the second adjustment in its current policy easing cycle. This cut would bring the deposit rate down to 3.50% and the main refinancing rate to 4.00%. However, the market’s attention is not solely on today’s decision but rather on the ECB’s forward guidance.
One critical question is whether ECB will hint at another rate cut in October, or if it will maintain a more cautious pace by cutting once per quarter, with December being the next move when fresh economic projections are released. T
These issues are unlikely to be directly addressed in today’s press conference, as ECB President Christine Lagarde will likely reiterate the data-dependent, meeting-by-meeting approach. Nonetheless, ECB’s updated economic forecasts, particularly concerning growth, could offer insight into the bank’s level of concern over the current economic slowdown.
In the currency markets, Euro’s reaction to ECB decision will be watched closely, particularly against the British Pound and Swiss Franc.
Technically, EUR/GBP’s price actions from 0.8399 short term bottom are still corrective looking. While stronger recovery might be seen, upside should be limited by 38.2% retracement of 0.8624 to 0.8399 at 0.8485. Break of 0.8399 will bring retest of 0.8382 low. Firm break there will resume larger down trend. However, sustained break of 0.8485 will bring stronger rally to 61.8% retracement at 0.8538 and possibly above.
As for EUR/CHF, a temporary low should be formed at 0.9305 with current recovery. But further decline is expected as long as 0.9444 resistance holds. Below 0.9305 will resume the fall from 0.9579 to retest 0.9209 low. Firm break there will resume larger down trend. However, decisive break of 0.9444 will argue that the pullback from 0.9579 has completed as a corrective move. In this case, rise from 0.9209 could be resume to resume through 0.9579 resistance instead.
