The European Central Bank (ECB) is set to keep its deposit rate at 2.5% during its upcoming meeting on Thursday, according to a Reuters poll. Economists overwhelmingly expect rates to remain unchanged, with 70 out of 73 surveyed forecasting no change. However, 64 of these economists anticipate a 25 basis point hike in December, reflecting the market's pricing of further tightening into 2027.
Inflation pressures in the euro area have intensified, with the latest data showing a rise to 3.8% in September. German state CPI figures also point to higher inflation, suggesting widespread price pressures. While the ECB's September projections revised core inflation and 2027 GDP growth higher, the bank may prefer to assess incoming data before committing to further tightening beyond December.
EUR/USD traders are watching positioning closely, as gross-short exposure among large speculators has reached a record high. Despite this, EUR/USD has held above its May low, raising the possibility of a short-covering rally if central bank expectations shift. A more meaningful recovery in EUR/USD would likely require a less-hawkish Fed or a more-hawkish ECB, or both.
Technically, the euro is in a downtrend but is currently trapped between its 200-week moving averages. A bullish hammer formed above the lower trend channel and 200-week SMA, although momentum is turning lower once again on the daily chart. Bears may be eyeing a retest of the 1.1130 low heading into the ECB and Fed meetings, with volatility potentially narrowing as the decisions approach.