Euro slips back to its summer low as ECB President Lagarde urges measured hikes

Traders betting on a faster European Central Bank (ECB) got pushback from ECB President Lagarde on Monday, and EUR/USD fell back to its late-July low near 1.1350. The pair closed just above 1.1350, three sessions after it broke below 1.1400. Lagarde told a European Parliament committee that the energy shock is too large to look through, but that a measured response remains appropriate because there's no sign yet of energy costs feeding into wages. Eurozone inflation was 3.2% in August, with energy prices up 14.3% YoY, and the ECB's September staff projections have it averaging 3.0% this year and 2.5% in 2027.

Lagarde counted the bond market as part of the tightening

Lagarde also said long-term interest rates have climbed since the ECB's September meeting, which will slow growth and cut the pass-through of energy costs by more than the ECB projected. Higher yields in Europe usually help the Euro, but she presented them as work the ECB no longer has to do itself. Traders heard fewer ECB hikes, and a smaller rate lift for the Euro against a Dollar backed by the Fed's 3.75%-4.00%.

The ECB raised its deposit rate to 2.50% on September 10, its second increase this year, and futures priced about a 60% chance of another on October 29 as of September 24. The October decision lands the day after the Fed's, so the ECB will vote knowing whether the gap to US rates has just widened again. Wednesday's Governing Council meeting is a non-monetary one, with no rate decision on the agenda.

Fifteen ECB speeches come before one inflation number

Lagarde speaks again on Tuesday at 11:00 GMT and on Thursday at 13:30 GMT, and 13 more ECB speeches are scheduled before Friday's flash Harmonised Index of Consumer Prices (HICP) for September at 09:00 GMT. Headline inflation is forecast at 3.6% YoY, up from 3.2%, and the core reading, which strips out energy, food, alcohol and tobacco, at 2.5% from 2.4%. The core figure is the one closer to the second-round effects Lagarde said the ECB hasn't seen yet, so a 2.5% or higher reading would test the measured line before October 29.

On the US side, core Personal Consumption Expenditures (PCE) inflation lands on Wednesday, forecast at 3.4% YoY, and September payrolls follow on Friday at 12:30 GMT, three and a half hours after the eurozone inflation number. EUR/USD gets both halves of the rate question on the same day.

Where the pair stands into Friday's inflation reading

Resistance: Friday's high just above 1.1400 is as far as any bounce has reached since the September 23 break. Above that, 1.1450 is the level that gave way that day.

Support: 1.1350 held on Monday and in late July. Under that, the late-June low near 1.1300 marks the bottom of the summer range.

Bias: Short below 1.1400, looking for a daily close under 1.1350 first and 1.1300 after that. The daily Stochastic Relative Strength Index (Stoch RSI) reads about 5 and has held under 20 since mid-September, which argues for a bounce before a break. A daily close above 1.1450 would end the short.

EUR/USD daily chart