Euro Rises Despite ECB Rate Cut, as Dollar Weakness Remains Dominant Theme

 Key Takeaways:

*ECB delivers widely anticipated 25bps rate cut to 3.75%

*Eurozone inflation cools, offering ECB room to ease policy

Market Summary:

The euro edged higher against the U.S. dollar on Thursday, extending its gains despite the European Central Bank (ECB) delivering a widely anticipated 25-basis-point interest rate cut, as a broader dollar retreat continued to underpin the currency pair.

The ECB lowered its key deposit rate to 3.75% from a record-high 4.0%, marking its first rate cut since 2019, as cooling inflation across the eurozone provided policymakers room to ease monetary policy. Eurozone inflation has moderated in recent months, driven by declining energy prices and softer services costs.

Market reaction to the ECB’s move was muted, as traders had fully priced in the cut. However, the euro found support from sustained U.S. dollar weakness, with the Dollar Index (DXY) hovering near multi-week lows amid shifting expectations on the Federal Reserve’s policy path.

“The ECB’s decision was well-telegraphed, so the euro’s movement is more about dollar dynamics than the rate cut itself,” said Jane Foley, head of FX strategy at Rabobank. “If U.S. data continues to soften, we could see further EUR/USD upside.”

Traders are now focusing on Friday’s U.S. nonfarm payrolls report for further clues on the Fed’s next steps. A weaker-than-expected jobs number could reinforce bets on Fed rate cuts this year, potentially weighing further on the greenback.

Technical Analysis

EUR/USD, H4 

The EUR/USD pair continues to trend higher, currently testing a critical resistance level at 1.1450. This level marks a key psychological and technical barrier, and a decisive breakout would signal strong bullish conviction.

Technical indicators:

• MACD is gaining upward traction, reflecting increasing bullish momentum.
• RSI is at 62, suggesting a solid upside move while still remaining below overbought territory—leaving room for further gains.

A confirmed breakout above 1.1450 would likely accelerate bullish momentum, with the next upside target at 1.1535. Conversely, failure to clear 1.1450 may lead to short-term sideways consolidation or a technical pullback, with initial support seen near 1.1370, followed by the stronger zone at 1.1270.

Resistance levels: 1.1450, 1.1535

Support levels: 1.1370, 1.1270