Germany’s manufacturing slowdown has spread to the wider Eurozone, prompting concerns that the European Central Bank (ECB) may be forced to cut interest rates to prevent recession. The ECB’s forward guidance for next Thursday’s meeting is likely to be revised to focus on preventing recession rather than maintaining restrictive monetary policy.
A recent decline in German manufacturing growth has led to a widening of the yield spread between German Bund and US Treasury Notes, reaching its lowest level since mid-September. This suggests that if the ECB cuts interest rates, it may be the fourth time this year to lower the key deposit rate to 3%.
The EUR/USD is expected to experience a potential corrective rebound within its medium-term downtrend. Technical analysis shows that the currency has consolidated in a sideways range ahead of today’s US non-farm payrolls data release, and its daily RSI momentum indicator has broken above a key parallel descending resistance. This suggests that bullish momentum has surfaced, supporting a mean reversion scenario with intermediate resistance at 1.0670.
However, if the EUR/USD breaks below 1.0420, it would signal a direct bearish tone, and further declines could push prices to 1.0200. If this happens, it may expose the currency to another round of impulsive down moves, potentially resuming its medium-term downtrend phase.
Overall, the ECB’s interest rate decision next Thursday will be closely watched for hints on its monetary policy stance in 2025 and how it will address the Eurozone’s economic slowdown.
Source: https://www.marketpulse.com/forex/eur-usd-additional-accommodative-monetary-policy-guidance-from-the-ecb-may-be-forthcoming/kwong