EUR/USD Analysis: ECB Cuts Interest Rate for First Time Since 2019

By its decision, the ECB followed the example of the Bank of Canada, which lowered interest rates by 0.25%, as we reported yesterday. Consequently, this trend might continue with the Federal Reserve, marking the development of easing monetary policy cycles in Western economies.

According to ForexFactory:
→ the interest rate had been at 4.50% since September 2023;
→ it was reduced to 4.25%;
→ the reduction was accurately predicted by experts.

According to CNBC:
→ the ECB forecasts inflation at 2.5% in 2024 and 2.2% in 2025;
→"Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady," stated the ECB Governing Council.

Given that the rate cut was anticipated, the EUR/USD rate hasn't changed significantly today, despite a noticeable spike in volatility.

Analysing the EUR/USD chart on 30 May, we highlighted the importance of the 1.08 level.

Since then, the bulls have shown the ability to bounce off this level and rise to 1.09.

The technical analysis of the EUR/USD chart, considering fresh data, provides important insights:
→ the 1.09 level shows signs of resistance, as the price struggles to stay above it for long;
→ this is evident from the price action forming peak B, as well as from yesterday’s action following the ECB news release;
→ the RSI indicator is forming a bearish divergence between peaks A and B.

Thus, the EUR/USD price is forming a narrowing triangle between the ascending trendline (shown in green) and the 1.09 level. It’s possible that a breakout of this pattern, which can be interpreted as a temporary consolidation, will lead to a new significant trend. The impetus for this could be the results of the European Parliament elections taking place from 6-9 June.

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