• ECB expected to pause on rate hikes
• Inflationary pressures have eased in Europe
• However, economic outlook paints gloomy picture
• Hawkish messaging may leave doors open to December hike
• EURUSD back within range, potential breakout on horizon.

As far as markets are concerned, the European Central Bank (ECB) is expected to leave rates unchanged in October for the first time in over a year, amid signs of cooling inflation. Over the past few months, price pressures have eased in Europe, with the headline rate falling to 4.3% in September, which was the lowest since October 2021.

ECB officials signalled at their previous September meeting that rates were high enough to bring inflation back towards the 2% target. However, concerns are rising about the worsening economic outlook, along with geopolitical tensions in the Middle East.  Indeed, the string of recent disappointing data paints a gloomy picture with recession fears rife as high rates impact households and businesses.

Investors will pay close attention to any fresh clues the ECB has to offer on monetary policy for the rest of 2023 and beyond. Should the ECB communicate that rates will remain higher for longer, this could leave the door open for one final hike in December. As of writing, traders are pricing in only around a 10% probability of an ECB rate hike by December with the odds of a rate cut by April roughly 50%.

Looking at the technical picture, EURUSD remains under pressure on the daily charts.

Prices are back within a wide range with support at 1.0450 and resistance at 1.0630. The euro could find itself under fresh pressure if the ECB strikes a cautious tone and hints that no more hikes are expected down the road. This may drag the EURUSD back towards the 1.0450 support level as a result.

Should the central bank strike a hawkish note, this could push EURUSD back towards 1.0630 and beyond as bets increase on a December rate move.