While the euro continues to hold its ground against the dollar, European Central Bank (ECB) Governing Council member Fabio Panetta indicated during an interview today that inflation in the eurozone is almost fully contained but warned that further interest rate cuts require carefully considered decisions.

This statement, made amid growing discussions about the ECB's monetary policy outlook, points to the regulator's cautious approach toward future actions. Panetta, emphasizing the progress made in combating inflation, suggested that further rate cuts are likely, but his comments were aimed at tempering market expectations.

The head of the Bank of Italy welcomed the progress but cautioned that from now on it would not be easy to decide whether to continue lowering borrowing costs. "Disinflation has not caused significant damage to the economy and is now nearing completion," Panetta said in his annual speech to Italy's financial elite in Rome. "The previous declines in inflation rates clearly leave less room for further interest rate cuts. However, macroeconomic prospects remain weak, and trade tensions could worsen them, so now is not the time to retreat."

Panetta's comments represent a step beyond the ECB's previous statement last month that "the disinflation process is on track." Notably, today Spain reported its first slowdown in annual consumer price growth below 2% in seven months. In Italy, the monthly consumer price index showed no change after rising 0.1% in March, and the annual inflation rate fell to 1.7% from 1.9%. These data present a mixed picture for the Italian economy. On one hand, the stagnation in the monthly consumer price index may suggest weakening consumer demand or even the onset of deflation. On the other hand, the slight decline in annual inflation is a positive signal indicating the effectiveness of current economic policies.

It's important to note that a drop in inflation to 1.7% brings Italy closer to the ECB's target level, opening the door to more flexible monetary policy. However, the absence of growth in consumer prices may also signal the need for stimulus measures to support the economy and maintain consumer demand.

The ECB is expected to cut rates next week, and a survey of economists suggests that policymakers should not wait too long before cutting rates again to avoid confusing investors.

Panetta warned that officials would face several tough challenges. "A pragmatic and flexible approach will be needed, closely monitoring liquidity conditions and signals from financial and credit markets," he said. "Setting the course for monetary policy in the coming months will not be easy. Each decision will need to be assessed based on the available data and prospects for inflation and growth."

Panetta described the economic outlook as "unstable" and potentially subject to risks in any direction. "Further strengthening of the euro, rising uncertainty, or tighter financial conditions could intensify the recessionary impact of tariffs," he said. "Moreover, a larger-than-expected increase in Chinese exports to Europe could lead to a decline in production and inflation."

Technical Outlook: EUR/USD

Currently, buyers need to focus on reclaiming the 1.1340 level. Only then will it be possible to aim for a test of 1.1375. From there, it could move toward 1.1420, but achieving this without support from major players will be difficult. The ultimate target would be the 1.1450 high. If the pair declines, I expect significant buying interest only around 1.1300 level. If no buyers appear there, it would be wise to wait for a drop toward 1.1260 or consider opening long positions from 1.1221.

Technical Outlook: GBP/USD

For pound buyers, overcoming the nearest resistance at 1.3495 is crucial. Only then can they aim for 1.3540, which will be challenging to breach. The ultimate target would be the 1.3585 level. In case of a decline, bears will try to regain control over 1.3465. If successful, breaking this range would seriously damage the bulls' positions and push GBP/USD toward the 1.3435 low, with a potential move to 1.3410.