Euro stabilizes ahead of ECB decision

The euro is steady on Thursday, after sliding over 1% on Wednesday following the hot US inflation report. In the European session, EUR/USD is trading at 1.0745, down 0.03%.

ECB widely expected to hold rates

The European Central Bank meets later today and is widely expected to hold the deposit rate at 4% for a fifth straight time. Investors will be focusing on the rate statement, looking for signals of a rate cut in June. Some ECB policy makers have pointed to June cut and if ECB doesn’t follow suit could hurt the Bank’s credibility. The ECB would prefer to wait for the Fed to cut first, as this would boost the euro and push inflation lower. The most recent US nonfarm payrolls and inflation reports, however, were stronger than expected, which has lowered the probability of a Fed cut in June.

The eurozone economy is showing a bit more strength but a recession is still a possibility. Inflation fell to 2.4% in March, its lowest level since July 2021 and is closing in on the 2% target. Still, there is more work to do – core inflation is at 2.9% and services inflation remains very high at 4%.

The euro took a tumble on Wednesday, losing 1.05%, its worst daily performance since March 2023. The US dollar posted sharp gains against the majors, courtesy of a stronger-than-expected inflation report. In March, CPI jumped 3.5%, up from 3.2% in February and above the market estimate of 3.4%. Inflation has accelerated for a second straight month and has lowered expectations of a Fed rate cut to just 23% in June and 54% in July.

EUR/USD technical

• There is support at 1.0692 and 1.0641.

• 1.0779 and 1.0830 are the next resistance lines.