Expected Scenarios for the European Central Bank Meeting

Today, markets are anticipating the European Central Bank meeting, where expectations suggest a reduction in interest rates by 25 basis points. Investors are also keenly awaiting the ECB's statement and the forthcoming press conference by the ECB President, Christine Lagarde, aiming to form a future outlook on the ECB’s monetary policy.

Key Economic Data in Europe and Its Impact on Interest Rate Decisions

Since last year, the European region has faced significant economic and political challenges, particularly in its largest economies, France and Germany. These challenges have begun to decrease, partly due to early parliamentary elections in Germany and French efforts to improve economic conditions and overcome energy price issues.

Europe also faces the potential for economic tensions that could lead to a trade war with its historical trading partner, prompted by tariffs that the American president has promised to implement on April 2 at a rate of 25%, a point he emphasized in his first meeting this week before Congress.

All these factors have prompted the ECB and the European Commission to adopt an accommodative and stimulative policy aimed at supporting economic growth. The latest economic growth reading in the European region was 0.9%, still below the ECB's target of 1.1% for 2025.

The European Manufacturing PMI index narrowed its deficit in the latest reading from 46.6 to 47.6, but it remains below the 50 level. The European Consumer Price Index (CPI) on an annual basis decreased from 2.5% to 2.4%, marking the first decline after four consecutive increases, although this reading may not be sufficient to confirm a renewed decrease in inflation in Europe; especially with rising concerns that American tariffs and potential European counter-tariffs could lead to increased production costs and higher prices for goods and services again, as per analyst.

Possible Scenarios and Their Potential Reflection on the Euro

Scenario One: The ECB cuts interest rates by 25 basis points as expected, and ECB President Christine Lagarde signals a continuation of the accommodative stance in upcoming meetings, which would likely negatively impact the euro.

Scenario Two: The ECB cuts interest rates by 25 basis points, but Lagarde indicates that inflation is not expected to reach the 2% target and also signals a need to pause interest rate cuts, possibly stopping reductions in the next meeting, which would likely positively impact the euro.

In summary, today’s ECB meeting is significant not only for the interest rate decision but also for the signals that ECB President Christine Lagarde’s conference will convey, which will shape the course of future interest rates, as per analyst.

Technical Analysts Outlook for the EUR/USD Pair

Figure 1: EURUSD, D, TradingView

Despite the ECB meeting and its implications, markets are also looking forward to tomorrow’s U.S. employment data, with expectations for the American economy to add 153,000 non-farm jobs and the unemployment rate to remain at 4.0%. Any reading higher than 153,000 could positively reflect on the U.S. dollar, thus negatively affecting the EUR/USD pair, and any reading lower than 153,000 could negatively impact the U.S. dollar, supporting a rise in the EUR/USD pair.

This week, the euro has risen about 4% against the U.S. dollar, marking its best weekly performance against the U.S. dollar since August 2024. The fundamental factors contributing to this rise include the recent weakness in the U.S. dollar.

The euro against the dollar broke through the level of 1.06322 and recorded a daily high above it, leading to a change in trend from bearish to bullish. A pullback to the level of 1.03157 is considered only a corrective move to continue the bullish trend aiming for the level of 1.06708, as per analyst analysis.