Unlike the Federal Reserve yesterday, which extended its easing campaign by slashing another 25bps off its federal funds rate, the European Central Bank is widely expected to stand pat and hold rates steady for a third consecutive meeting. Fore reference, the main refinancing rate is set to remain at 2.15%, while the deposit facility rate will most likely stay at 2.0%.

Growth across the bloc managed to avert its fall into contraction territory in the third quarter of 2025, which would have met the definition of a technical recession and showcases signs of a potential return to moderate growth in the next year. Productivity of the manufacturing front in Germany and the services front in France, are also making their way slowly towards expansion according to the latest PMI readings.

Recently ECB policymakers have indicated that the current policy stance is most appropriate for the state of the Union, where inflationary pressures remain consistently stable within the 2% medium term target and the odds for reignition albeit being present they remain relatively low.

Taking things up a notch, money market participants have now got increasingly confident with their projections, forecasting that the central bank will keep rates at the current level for the entirety of 2026, highlighting the prospects of inflation reigniting will be enough to convince policymakers.

Comparing that with the Fed whose target rate now stands at 3.75%-4%, market participants note that the ECB has done enough, whereas the Federal Reserve has more left to do, creating potential net interest differential discrepancies between the Euro and the Dollar.

Net interest differentials are now expected to narrow further which could put the Euro at a relatively advantageous position against the greenback and given that the current tariff policies would most likely lead to further devaluation of the USD, odds for EURUSD making its way towards the $1.20 area in the medium term.

Technical Analysis

EURUSD Chart – The Euro trades near two week lows ahead of ECB decision

Resistance: 1.1740 (R1), 1.1830 (R2), 1.1920 (R3)
Support: 1.1550 (S1), 1.1470 (S2), 1.1400 (S3)