EUR/USD logs four-day losing streak ahead of ECB

EUR/USD fell for the fourth straight day on Wednesday on the prospect of the European Central Bank (ECB) rate cuts.

The ECB is widely expected to leave policy rates unchanged today, but prepare the ground for cuts in the coming months by removing the tightening bias from its interest rate forward guidance.

UBS expects a 10 basis points (bps) rate cut on 12 September, with a further 10bps to follow on 12 December (or possibly earlier, on 24 October).

Meanwhile, ING believes the recent economic data out of the Eurozone has pushed the ECB closer to the July action (pre-emptive rate cut ahead of the Fed).

Markets may have priced in September rate cut 

The market seems to have priced in a 10 basis point rate cut in September. This is evident from EUR/USD pullback from the June 25 high of 1.1412 to Wednesday's low of 1.1127.

The German 10-year Bund yield has also shed 18 bps over the nine days.

Hence, the EUR may be able to defend 1.11 if the ECB hints at September rate cut, but downplays the need for aggressive easing.

The common currency, however, could take a beating and drop to 1.10 in the next few days if the ECB sends out a strong dovish signal, setting the stage for multiple rate cuts over the next few months or cuts rates today.

As of writing, EUR/USD is trading at 1.1134. The bear flag breakdown on the daily chart indicates the path of least resistance is to the downside and the pair could drop well below 1.11. A bullish reversal would be confirmed if and when the pair rises above 1.1286, invalidating the bearish lower highs setup.

Technical levels