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Eurozone economy on track to improve in 2024
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But investors still expect ECB to cut rates in June
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Breaking PMI could impact bets beyond the meeting
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Data will be published on Thursday at 08:00 GMT
ECB expresses confidence in lowering interest rates
ECB officials decided to keep interest rates on hold as expected at their recent meeting but sent clearer signals that they could start cutting rates soon. Lagarde told a news conference that falling inflation was reassuring and several members felt confident enough to cut rates.
Although he did not explicitly mention a specific timing, a few hours after his speech, a report citing three sources close to ECB discussions said policymakers were expected to cut interest rates in June. One thing became clear.
Economy improved, but June terminated completed agreements
Since then, CPI figures for April revealed that the composite index stabilized at 2.4% year-on-year, while the core index slowed to 2.7% year-on-year from a lower-than-expected 2.9%. In addition, first-quarter GDP data shows a stronger-than-expected recovery in economic activity in the euro area after the euro area slipped into a mild recession in late 2023. The improvement continued in April, according to PMI, but investors are confident the ECB will make its first rate cut of 0.25 percentage points in June. Investors are pricing in another 40 basis point rate cut this year.
The preliminary PMI report for May will be released on Thursday, with forecasts pointing to further improvement. That said, ECB policymakers themselves continue to signal that a first rate cut is likely in June, making it difficult for investors to bet on a June rate cut even if there is an upside surprise. It is unlikely to shrink. However, it could take off the table several basis points worth of cuts expected for the rest of the year, which could still be positive for the euro.
EUR/USD seeks opportunity to break above 1.0885
From a technical perspective, EUR/USD hit resistance just above the 1.0885 zone before rebounding and the northward exodus of bulls ended on April 9th. However, EUR/USD is still above $200, above the downtrend line drawn from the December 28 high. -day exponential moving average (EMA). This currently coincides with major support at 1.0800.
Therefore, Thursday's set of better-than-expected PMIs could prompt buyers to take the reins again, pushing the price above 1.0885. Such a move would confirm further highs and possibly pave the way for the March 21st high of 1.0930. A further breakout could see room for extension towards the March 8th high of 1.0980 and the psychological round of resistance on January 5th and 11th at 1.1000. .
On the downside, the pair may need to break below the key support area at 1.0725 for the outlook to start becoming bearish. This is because it also involves a move below the short-term uptrend line drawn from the April 16 low.
