ECB officials taking it easy for now – OCBC

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

Factors may be supportive of EUR upside

“Lack of ECB dovishness and broad USD weakness were some of the factors underpinning EUR’s late comeback for the week. A day later, she told reporters that ECB is open to considering a rate cut in October if the economy suffers a major setback though the next comprehensive set of information will only be available at the following meeting (which is December). Banque de France’s Villeroy added that the pace has to be highly pragmatic and that policymakers are not pre-committing to any particular rate path, and they keep their full optionality for next meetings.”

“Other ECB officials also chimed in: 1/ Simkus said that policymakers will need strategic patience as they plot the course ahead and services inflation, wage dynamics are the key uncertainties; 2/ Holzmann said there could be room for another 25bp cut in Dec meeting; 3/ Kazaks said that a cut can be considered if economy feels significantly weaker than is currently expected and inflation also significantly declines; 4/ Rehn said that growth remains slow in the euro-area and downside risks to growth have increased over the summer.”

“On net, the focus is on growth. If growth momentum decelerates significantly, then rate cut cycle may pick up pace. But as of now, there is no rush and ECB prefers to maintain full optionality. On this note, ECB’s no rush to ease vs. greater room for Fed to ease may be supportive of EUR upside. Bearish momentum on daily chart shows signs of fading while RSI rose. Risks are slightly skewed to the upside for now. Resistance here at 1.1140 and 1.12 levels. Support at 1.1010, 1.0970 (50-DMA, 38.2% fibo retracement of 2024 low to high).”