ECB’s Holzmann Says Rate Cuts Not Guaranteed This Year

Hawkish ECB Commentary

EUR bulls received a bit of a boost this week with ECB’s Holzmann telling reporters today that rate cuts are not guaranteed. Holzmann, who is among the more hawkish of the ECB, warned that due to remaining inflationary risks there is a chance that rates remain on hold this year. Traders have been caught recently between oscillating views on the ECB. Falling eurozone inflation and weaker eurozone data have seen traders building up their rate-cut expectations with a first cut priced in by April. However, the ECB has continued to push back against these expectations, warning that rates will remain at elevated levels for as long as necessary to bring inflation down to target.

Calling The ECB’s Bluff

The call for traders now is to decide whether this rhetoric is an attempt by the ECB to prevent front-running of expected rate cuts and a premature weakening of EUR, which might fuel an uptick in CPI. With this in mind, incoming data will be closely watched, particularly inflation readings. If CPI continues to move lower, traders will retain their near-term easing expectations, despite ECB push-back, keeping EUR pressured. However, if CPI starts to move higher this could well see traders scaling back their easing expectations, allowing EUR room to move higher near-term.

Technical Views


For now, the pair is sitting on support at the bull channel lows and the 1.0724 level. This is a key pivot area for the market which bulls will need to defend to prevent a deeper slide down to 1.0515. To the topside, bulls need to get back above 1.0937 to alleviate the near-term bearish bias.

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