ECB officials are taking it easy for now – OCBC

The euro (EUR) retraced early week losses to end the week flat, note OCBC FX strategists Frances Cheung and Christopher Wong.

Factors can support the growth of the euro

“The lack of ECB reconciliation and general USD weakness were some of the factors supporting the EUR’s late rally this week. A day later, she told reporters that the ECB is open to considering an interest rate cut in October if the economy suffers a major setback, although the next comprehensive set of information will only be available at the next meeting (which is December). Banque de France’s Villeroy added that the pace must be highly pragmatic and that policymakers are not pre-committing to any particular rate path and retain full discretion for the next meetings.”

“Other ECB officials also chimed in: 1/ Simkus said policymakers will need strategic patience as they chart the future course, with services inflation and wage dynamics the key uncertainties; 2/ Holzmann said there could be room for another 25bp cut in the December meeting; 3/ Kazaks said a cut may be considered if the economy feels significantly weaker than currently expected and inflation also falls significantly; 4/ Rehn said growth remains sluggish in the eurozone and downside risks have increased over the summer.”

“On the net, the focus is on growth. If the pace of growth slows significantly, then the rate cut cycle may accelerate. But as of now, there is no rush and the ECB prefers to maintain full optionality. On that note, no rush by the ECB to ease, in the face of more room for the Fed, could support EUR growth. The bearish momentum on the daily chart shows signs of falling while the RSI has risen. Risks are slightly tilted to the upside for now. Resistance here at 1.1140 and 1.12 levels. Support at 1.1010, 1.0970 (50-DMA, 38.2% 2024 fibo retracement from low to high).”