The euro slumped throughout much of Friday, breaking below immediate support at 1.2690, as Euro-zone CPI slowed in line with expectations to an annual rate of 1.1 percent, the lowest since 1999. On a longer-term basis, resistance looms at 1.3000 while support rests at 1.2500, and either of these levels could be tested next week as the European Central Bank (ECB) will announce their next rate decision on March 5. The decline in Euro-zone CPI estimates well below the ECB’s 2.0 percent target, steady increases in unemployment, and increasingly pessimistic consumer and business confidence all suggest that the central bank will cut rates by 50 basis points to 1.50 percent. Indeed, after the ECB cut rates to a record low of 2.00 percent on January 15, ECB President Jean-Claude Trichet said that the next "important" meeting would be in March when they release new projections for growth and inflation. Furthermore, he refused to call 2 percent the lower limit for interest rates, leaving the door open to further reductions in coming months. As a result, the 7:45 ET announcement will garner quite a bit of attention, but traders should also look to Trichet’s post-meeting press conference at 8:30 ET. Trichet is one of the most opinionated central bank chiefs around, and suggestions that the ECB will continue to cut rates have the potential to lead the euro far lower. On the other hand, if the ECB signals that they may leave rates unchanged during their next meeting, the currency could actually rally.
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