FX.co ★ Euro could suffer heavy losses after today's ECB meeting

Yesterday, Federal Reserve Chairman Jerome Powell's speech in the House of Representatives was completely overlooked by dollar buyers as the head of the central bank said nothing new. Today, the European Central Bank is set to keep borrowing costs steady for the fourth consecutive meeting, though new economic projections are expected to bolster arguments for the start of rate cuts later this year. In this case, the European currency is likely to suffer losses, with the US dollar gaining value. Many traders are betting that the ECB will lower rates even before the Federal Reserve does. If these expectations are confirmed today, the euro could halt its bullish run.

Economists expect the deposit rate to remain at a record high of 4%. After all, many ECB officials have repeatedly warned that it is still too early to declare victory over inflation, despite it approaching the target level of 2%. The fresh quarterly forecasts prepared by ECB staff are expected to show inflation returning to the target more quickly, giving policymakers more confidence in reducing borrowing costs soon.

While the Federal Reserve and the Bank of England are still contemplating when it is appropriate to begin easing monetary policy, Christine Lagarde and her colleagues are making firmer statements, indicating that no one is in a rush to cut rates. Today, Lagarde is likely to signal the first rate cut in June this year. By that time, there should be more clarity on the state of the European labor market and wage growth in the region.

Only a few of the 26 members of the Governing Council have spoken in favor of easing policy before the start of this summer. The majority caution against hasty actions, stating that the consequences of inflation resuming growth would be much worse than the consequences of keeping borrowing costs high.

Notably, February's inflation figures were higher than expected, which reinforced such sentiments.

The key question is how firmly Lagarde will continue to advocate for cutting rates this summer and whether this completely rules out the possibility of such a decision being made at the April meeting.

Now let's move on to technical analysis. As for the EUR/USD pair, demand for the euro persists. Buyers now need to consider how to take control of the 1.0915 level. Only this will allow targeting the 1.0945 mark. Then the euro is likely to rise to 1.0965, but doing so without support from major players will be quite challenging. The most distant target is the high of 1.0998. In a bear case scenario, major buyers are expected to regain control of the market at around 1.0825. In case of bulls' subdued trading activity, it would be wise to wait for the price to fall below the 1.0855 low, or open long positions at 1.0830.

As for the GBP/USD pair, to extend gains, bulls need to take control of the nearest resistance level of 1.2760. This will allow targeting 1.2800, a breakout of which will be quite challenging. The most distant target lies in the area of 1.2825. If the price breaks above this level, the British pound will most likely head for the 1.2850 mark. In case of a decline, bears will try to take control of 1.2725. If the price breaks below this level, the GBP/USD is expected to dip to the low of 1.2690 and then probably reach the 1.2660 mark.