EUR/USD may continue to fall? ⤵️

Let's take a look at some fundamental news regarding EUR/USD:

Commerzbank's economists have reported uncertainty regarding the market reaction to the European Central Bank's (ECB) decision today. There are doubts whether the market reaction to the ECB decision will be "normal," given the current situation. The question is, what will the ECB decide today, and how will the FX market react?

According to Commerzbank, the market's reaction to the Euro in the case of a 50 basis points (bps) step by the ECB is not straightforward. For a 50 bps rate step to have a EUR-positive effect today, the market must believe that such a step is appropriate. However, if FX traders perceive the situation of the European financial system as fragile, they might consider a 50 bps step to be a mistake. Consequently, they could conclude that this would require much stronger or earlier ECB rate cuts, leading to a EUR-negative effect.

It is not certain whether the FX market thinks in such a manner, and perhaps it is not even likely. That said, the possibility cannot be completely ruled out. Hence, the FX market reaction to the ECB's decision remains highly uncertain.

On the other hand, a 25 bps step by the ECB is expected to elicit a positive response from the Euro. However, this depends on how convincing ECB President Christine Lagarde is in assuring the market that if the financial system really does calm down, the "missing" 25 bps will be made up for. If the market is convinced of this possibility, it is more likely to respond positively to a 25 bps step.

Therefore, the ECB's decision today and the market's reaction to it remain highly unpredictable. It all boils down to how well the ECB can convince the market that its decision is appropriate and necessary, given the current economic situation in Europe.

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