EUR/USD jumps higher even as the ECB cuts rates

The ECB cut interest rates by 25 basis points on Thursday as widely expected. Christine Lagarde and her team said that inflation had come down significantly in recent months and that allowed the bank to start loosening some of the tightness in financing conditions. But the fact that they have cut this time around doesn’t mean they are going to continue doing so at every consecutive meeting. The ECB has said it will continue to be data-dependent, ensuring inflation returns to its long-term target of 2% in a timely manner.

EUR/USD jumped on the news, briefly surpassing the 1.09 level before retreating. The reaction may seem slightly unexpected at first as many would have thought that a rate cut from the ECB would weigh on the euro against the US dollar and British pound, based on rate differentials alone. But the fact that EUR/USD has moved higher may suggest that markets believe cutting rates was the right decision, regardless of how the rate differential is impacted. Making sure the economy doesn’t fall into a recession is likely to have been the key takeaway from this meeting.

EUR/USD 5-minute chart

Past performance is not a reliable indicator of future results.

European equities welcomed the rate cut but have struggled to hold on to the bullish momentum. The DAX 40 jumped to a 9-day high after the announcement but failed to break resistance at 18,800, quickly reversing back to the daily open. The RSI has also struggled to garner momentum despite having found support at 48.50 twice in the past week. There is clearly a lack of appetite to be a seller right now, but buyers are shying away from coming in at current levels. This suggests the index may trade sideways for a few days before enough momentum can be found to move in either direction.

DAX 40 daily chart

Past performance is not a reliable indicator of future results.



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