EUR/USD slips as ECB rate cut expectations weigh, drops below 1.1100

• EUR/USD extends losses after clearing 1.1100 support, with ECB expected to cut rates by 25 bps on September 12.
• Market sentiment remains cautious as analysts anticipate the ECB to revise economic growth and inflation projections downward.
• US CPI report this week could influence Fed rate cut expectations, with 70% odds for a 25 bps cut and 30% for 50 bps.

The Euro registered losses of 0.44% on Monday as the shared currency extended its fall after clearing the 1.1100 support level. Expectations that the European Central Bank (ECB) will slash rates at the September 12 meeting weighed on the EUR/USD, which trades at 1.1036, virtually unchanged as Tuesday’s Asian session begins.

EUR/USD drops 0.44%, as markets brace for ECB rate cuts, key US inflation

Wall Street closed Monday’s session in the green, a reflection of an upbeat risk appetite ahead of a week that will feature the release of inflation data in the United States (US). Across the pond, most analysts estimate the ECB will cut rates by 25 basis points.

Analysts at BBH expect the ECB to maintain its cautious easing guidance that “it will keep policy sufficiently restrictive for as long as necessary " and remain data-dependent.

The ECB is expected to unveil its economic projections, which include a downward revision of economic growth and inflation. Money market traders continue to price in 50 to 75 basis points of cuts toward the end of the year.

Data-wise, the Eurozone (EU) economic docket will feature German Inflation data on Tuesday, followed by the EU’s Industrial Production on Friday.

The New York Fed Consumer Inflation Expectations were anchored to the 3% threshold on the US front. Ahead of the week, the US Consumer Price Index (CPI) for August is expected to dip towards the Fed’s 2% goal.

If CPI edges lower, the odds of the Federal Reserve cutting its rate by 50 basis points are increased. Otherwise, gradual adjustments to monetary policy are already priced in.

The CME FedWatch Tool shows that the odds for a 25 bps rate cut are 70%, while for a 50 bps rate cut, they are 30%.

EUR/USD Price Forecast: Technical outlook

From a technical standpoint, the EUR/USD remains neutral to upward bias, though a decisive break below the September 3 low of 1.1026 might open the door for further downside. Key support levels, like the 1.1000 mark, will be exposed, followed by the 50-day moving average (DMA) at 1.0958. A breach of the latter and the pair might test the confluence of the 100 and 200-DMAs at around 1.0867/58, before diving to August 1 swing low at 1.0777.

For a bullish resumption, buyers must lift the pair above the September 9 high at 1.1091.