EUR/USD plunges as Draghi is considering rate cuts

© Reuters.

By David Wagner

The Euro plunged on Tuesday, with a response dovish tone of the boss of the ECB, the single currency going under the psychological threshold of 1.12 for the first time since two weeks.

Draghi plunge the Euro, pointing to rate cuts

Mario Draghi has thus affirmed that ” more rate cuts are part of the toolbox of the ECB “.

He also stressed that if the economic outlook does not improve, further monetary stimulus will be necessary.

The idea of a possible rate cut from the ECB is not really new, several members of the central bank had referred to this possibility. In addition, the economic conditions deteriorated, could justify a rate cut, particularly as several factors (such as the trade war) could worsen the situation.

However, this is the first time that Draghi evokes him-even if openly this possibility.

Thus, we can expect more details in this direction at the next meeting of the ECB, a view which would keep the pressure on the Euro.

The Fed meeting tomorrow is also a major risk

The Euro could also exacerbate its fall if the Fed meeting tomorrow night disappoints the expectations of the market.

Indeed, investors expect a probability close to 85% of see the Fed lowering its rates in the month of July. The expectations are so so high that so as not to disappoint, the Fed will have very clearly pre-announce this rate increase at its meeting tomorrow.

If this is not the case, we should expect a revaluation decrease of the probability of interest rate cuts from the Fed for the next month, with the key being a strong upward impact on the Dollar, which would increase the plunge of the EUR/USD.

It should be noted that, conversely, a confirmation by the Fed that it will cut its rate next month may not have an impact, is too pronounced, the rate hike expectations with little room to move up.

In other words, the reaction of bullish of the EUR/USD in the face of the Fed meeting tomorrow night if it confirms a rate cut to come will be less important than his reaction to the downside if the Fed fails to meet market expectations.

Thresholds to watch on EUR/USD

Finally, regarding the supports and resistances to be monitored in the short term, it should be noted that 1.1150 could play the role of an intermediate support, before the lowest annual 1.1106.

The increase, 1.12, 1.1240-50, 1.1290-1.13 and 1.1340-50 are the first resistances to be taken into account.

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