EUR/USD Outlook: Set for more losses as ECB rate cut looms

• Investors expect the European Central Bank to cut borrowing costs by 25 bps.

• The dollar held steady after the US consumer inflation report.

• The CPI report suggested a slow easing of monetary policy.

The EUR/USD outlook suggests more downside for the euro as markets anticipate another ECB rate cut later today. Meanwhile, the dollar recovered from upbeat monthly inflation figures from the previous session.

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Investors expect the European Central Bank to cut borrowing costs by 25 bps later today. However, the focus will be on messaging for future political movements. At this point, markets fully expect another rate cut in December. Meanwhile, the probability of a cut in October is 37%. So investors will be watching to see if policymakers are prepared to cut again in October. Such an outcome would hurt the euro.

The eurozone economy has slowed significantly and inflation has cooled. Consequently, the ECB does not prevent it from reducing borrowing costs.

Meanwhile, the dollar held steady after the US consumer inflation report. Core inflation rose an unexpected 0.3% in August, reducing the likelihood of a massive rate cut in September. Meanwhile, the annual figure fell to 2.5%, a step closer to the US central bank’s target. The CPI report was bullish for the dollar as it suggested a slow easing of monetary policy. With no major reports ahead of next week’s meeting, there is a good chance the Fed will cut rates by 25 bps.

However, things could change in the future. The labor market is shrinking and demand has slowed in the economy. Therefore, there is still a risk of a rapid slide. Any signs of a quick decline could renew bets for a 50bps cut after September.

Key EUR/USD events today

• ECB policy meeting
• US Wholesale Inflation Report

EUR/USD Technical Outlook: Bears eyeing 1.0950

Technically, the EUR/USD price is making new lows below the key support level of 1.1050. The bias is bearish as the price is trading below the SMA and the RSI is trading in bearish territory below 50.

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After breaking the previous low, the price is likely to extend to the 1.618 Fib level, which is close to the 1.0950 support level. The downtrend could stop here before returning to the SMA or breaking lower. However, the price could continue to consolidate below 1.1050 until there is a strong catalyst.

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