EUR/USD outlook: ECB unclear on rate cuts, eyes on FOMC

• ECB President Christine Lagarde said there was no predetermined rate cut path.

• The probability of another 25 basis point ECB rate cut fell from 30% to 20%.

• Former Fed Governor Bill Dudley noted a strong case for a 50 bps rate cut.

The EUR/USD outlook is tilted to the upside after ECB officials failed to provide clear guidance on future interest rate cuts. The cautious tone led to a reduction in ECB interest rate cut expectations, strengthening the euro. At the same time, the dollar remained vulnerable after news outlets on Friday renewed bets for a 50bp Fed rate cut this week.

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On Thursday, the European Central Bank cut interest rates by 25 basis points, in line with expectations. However, market participants were expecting clear guidance on futures rate cuts. ECB President Christine Lagarde said there is no predetermined path to cutting interest rates. Therefore, the central bank will decide on a meeting-by-meeting basis. Moreover, she noted that services inflation remains high. Market participants saw this message as a lower chance of another rate cut in October. As a result, the probability of another 25 basis point rate cut fell from 30% to 20%.

A gradual pace of interest rate cuts in the Eurozone could diverge from an expected aggressive Fed rate cut cycle. In particular, expectations for a very large September Fed interest rate cut on Friday have risen. Former Fed Governor Bill Dudley noted a strong case for a 50 bps rate cut.

The increase in discount betting continued on Monday, putting pressure on the greenback. However, the outlook remains uncertain as the likelihood of a 25 bps cut is also high. Therefore, Thursday’s result could catch some people off guard, causing turmoil in the markets.

Key EUR/USD events today

Market participants are not looking forward to any high-impact events today. Hence, the pair could be having a slow day.

Technical Outlook EUR/USD: Bulls eating 1.11151

Technically, the EUR/USD price has risen to challenge the previous high. The upside bias is strong as the price is well above the 30-SMA. At the same time, the RSI is trading near the overbought region. The trend reversed after the RSI made a bullish divergence with the price.

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The bulls are now approaching the key resistance at 1.1151. A break above this level would solidify the uptrend and confirm a new uptrend. Furthermore, it would clear the way for the price to return to the critical 1.1200 resistance level.

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