ECB the principle occasion on the agenda in Europe in the present day

A combination of a technical breakout and fundamental change has been quite the recipe for the euro to rip higher this week. And we’re now approaching a test of the 1.0800 mark. Mind you, it was only four days ago that we were still treading water around 1.0400 and look where we are now.

Germany loosening the purse strings by this much and calling for the EU to accommodate that is something not on the bingo list for this year. And when you couple that with a break of the 1.0500 level and 100-day moving average (red line), after several attempts of trying, it’s been quite a run up in EUR/USD this week.

A softer dollar across the board is also helping and the greenback arguably can take in some comfort already that the ISM services PMI report yesterday was pretty decent. It comes against a run of softer economic data in the US but then we still have the non-farm payrolls tomorrow to get through.

For trading today, we will still be building on the same key drivers all through this week. The euro is moving from one technical resistance to another, now contesting the 1.0800 mark and 61.8 Fib retracement level at 1.0817. A break of that will provide scope for a potential run towards 1.1000 next, which will arguably be a key topside target for buyers on this run.

Meanwhile, risk sentiment is also looking to recover some poise as Trump’s tariff threats continue to be less harsh than anticipated. There’s potential for a walk back on the tariffs against Canada and Mexico, so that also gives some hope that reciprocal tariffs won’t be as damning as well. The latter just adds another positive for the euro.

Looking to the session ahead, there won’t be much significant data releases but we do have the ECB policy decision coming up. A 25 bps rate cut is a given at this stage with a temporary pause after. And the ECB now has more reason to move to the sidelines, following the positive developments in Germany.

The question is, how much will their communication change? And if so, does this rule out a rate cut for June? As a reminder, the ECB will next meet in April after this before meetings in June and July ahead of the summer break.

As things stand, traders are pricing in another 25 bps rate cut for June but they might have to revise that depending on how the ECB wants to position their move to the sidelines here. My guess will be the ECB will still lean towards a more dovish tone even when pausing. And that means they don’t necessarily need to change their guidance below:

“It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.”

If the language holds, that should keep a June rate cut in play until we get better clarity in the weeks ahead from policymakers themselves.

0645 GMT – Switzerland February unemployment rate
0830 GMT – Germany February construction PMI
0930 GMT – UK February construction PMI
1000 GMT – Eurozone January retail sales
1230 GMT – US February Challenger layoffs, job cuts
1315 GMT – ECB announces its March monetary policy decision
1345 GMT – ECB president Lagarde press conference

That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.