EUR/USD depreciated 0.2% to 1.0893 overnight before tomorrow’s European Central Bank meeting, DBS’ FX analyst Philip Wee notes.

EUR priced in ECB rate cut

Following the drop in the Eurozone’s CPI inflation to 1.8% YoY in September, the ECB will likely lower the deposit facility rate by 25 bps to 3.25%. However, this month’s short EUR/USD strategy risks running into a classic ‘buy the rumour, sell the fact’ scenario.

“This month’s 2.2% depreciation has exceeded all monthly losses this year. Since November 2023, the 100-week moving average (currently around 1.0825) has significantly supported the EUR. Assuming this back-to-back cut materialises, the ECB may not pivot for another cut in December amid expectations for two Fed cuts in November and December.”

“Eurozone’s core inflation, at 2.7% YoY in September, remained above the ECB’s 2% target. Economic pessimism also eased after the ZEW survey expectations improved to a six-month high of 20.1 in October, following three months of declines.”