Euro Gains Modestly After ECB Cut, Dollar Soft on GDP Miss – Action Forex

Euro is trading slightly higher following the ECB’s widely expected 25bps rate cut, though the move lacks strong momentum. In her post-meeting press conference, President Christine Lagarde reinforced the bank’s “gradual easing path”.

She stated that a larger 50bps cut was not even considered today, making it clear that an aggressive rate-cutting cycle is off the table for now.

At the same time, Lagarde also emphasized that rates remain in “restrictive territory,” and ECB has not yet discussed ending its easing cycle, confirming that further rate cuts remain the way to go.

Meanwhile, Dollar is under mild pressure after weaker-than-expected Q4 GDP data weighed on sentiment. The greenback slipped alongside US Treasury yields, with the 10-year yield briefly falling below 4.5% mark before recovering. Despite this, Dollar’s decline has been relatively contained outside of USD/JPY, where the Yen is benefiting from falling yields. There is little indication of a sustained Dollar decline at this stage.

Across the broader forex market, Yen is currently the strongest performer of the day, followed by Euro and Pound. On the weaker side, Kiwi leads losses, followed by Dollar and Aussie. Loonie and Swiss Franc are trading in the middle of the pack.

Technically, AUD/JPY’s decline is making progress today and breached 96.05 support. The development affirms the case that consolidation from 95.50 has completed at 98.75. Fall from 102.39 is likely ready to resume. Further decline should be seen through 95.50 to 61.8% projection of 102.39 to 95.50 from 98.75 at 94.49. However, touching of 55 4H EMA (now at 97.17) will delay the bearish case, and bring more consolidations first.

US GDP growth slows to 2.3% in Q4, inflation pressures tick higher

The US economy expanded at a 2.3% annualized rate in Q4, missing expectations of 2.6% and slowing from Q3’s 3.1% growth.

The deceleration in growth was primarily driven by weaker investment activity, which offset gains in consumer and government spending. Meanwhile, imports declined, providing a slight boost to the overall GDP figure.

Inflation data within the report signaled a modest pickup in price pressures. GDP price index rose 2.2% in Q4, up from 1.9% in the previous quarter, though below forecasts of 2.5%.

PCE price index accelerated to 2.3% from 1.5%, while the core PCE price index (excluding food and energy), a key measure of inflation tracked by Fed, rose to 2.5% from 2.2%.

US initial jobless claims falls to 207k vs exp 225k

US initial jobless claims fell -16k to 207k in the week ending January 25, below expectation of 225k. Four-week moving average of initial claims fell -1k to 213k.

Continuing claims fell -42k to 1858k in the week ending January 18. Four-week moving average of continuing claims rose 6k to 1872k.

ECB cuts 25bps, disinflation well on track

ECB delivered a widely expected 25bps rate cut, bringing main refinancing rate to 2.75%,  marginal lending rate  to 2.90%, and deposit rate to 3.15%.

In its statement, ECB noted that the “disinflation process is well on track,” with inflation evolving broadly in line with projections. Policymakers expect inflation to reach the 2% medium-term target this year, with underlying inflation measures indicating price stability on a “sustained basis.”

ECB acknowledged that domestic inflation remains elevated due to “wages and prices in certain sectors still adjusting to the past inflation surge with a substantial delay.” Despite this, the central bank noted that wage growth is “moderating,” and corporate profit margins are absorbing part of the cost pressures, preventing a stronger inflation rebound.

Swiss KOF rises to 101.6, led by manufacturing and services

Switzerland’s KOF Economic Barometer climbed to 101.6 in January, up from 99.6 and surpassing market expectations of 100.5. This data suggests modest pickup in economic momentum, particularly in production-side sectors.

According to KOF, “the majority of the production-side indicator bundles included in the KOF Economic Barometer show positive developments.”

The strongest contributions came from manufacturing, financial and insurance services, hospitality, and other service industries, signaling resilience in key sectors of the Swiss economy.

However, the outlook remains uneven. While production indicators strengthened, demand-side indicators showed signs of weakness. KOF noted that both “the indicator bundles for foreign demand as well as for private consumption indicate a downward tendency,” highlighting subdued consumer activity and external trade concerns.

BoJ’s Himino reiterates further hike possible if economic forecasts hold

BoJ Deputy Governor Ryozo Himino reinforced expectations that the central bank could raise interest rates further if its economic and price projections are met.

Speaking today, Himino stated, “If our economic and price forecasts are achieved, we will raise our policy rate accordingly and adjust the degree of monetary support.”

Himino also highlighted concerns about Japan’s prolonged period of negative real interest rates, describing the situation as “not normal.”

He explained that an ideal economic scenario for Japan would involve rising wages and corporate profits, fueling stronger consumption and investment, which would then support moderate and stable inflation. In such a case, Japan could see real interest rates turn positive.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0387; (P) 1.0415; (R1) 1.0449; More…

EUR/USD recovers slightly but stays in range below 1.0531. Intraday bias remains neutral for the moment. Outlook is unchanged for now. On the downside, break of 1.0371 support will indicate rejection by 38.2% retracement of 1.1213 to 1.0176 at 1.0572 and retain near term bearishness. Retest of 1.0176 low should be seen next. On the upside, though, decisive break of 1.0572 will raise the chance of bullish reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, outlook is mixed as fall from 1.1274 (2023 high) could either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. Strong support from 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will favor the former case, and sustained break of 55 W EMA (now at 1.0722) will argue that the third leg might have started. However, sustained trading below 1.0199 will favor the latter case and bring retest of 0.9534 low.