EUR/USD Upbeat Ahead of EZ & US Inflation Updates
EUR/USD Analysis
The European Central Bank is poised to become the first major institution to pivot and cut rates in its upcoming meeting next week, given substantial progress on inflation, which stood at 2.4% y/y in April. Latest commentary on Monday pointed to such action, as Mr Lane on FT said "there is enough in what we see to remove the top level of restriction" [1] and Mr Rehn noted it's "ripe in June to ease the monetary policy stance and start cutting rates" [2]. However, recent CPI and wage date have showed some persistence, while policymakers have generally warned against back-to-back cuts, making the ECB's rate path far from certain.
On the other side of the Atlantic, the Fed has shifted to a cautious stance around removing restraint, as the disinflation process has lost momentum this year, while the labor market is robust and the economy strong. There is some back and forth in market expectations, but last week's FOMC minutes led to hawkish repricing. CME's FedWatch Tool now assigns the highest probability to just one cut this year (from two previously) and has pushed back the timing to November (from October) [3]. However, the most recent CPI report showed moderation, offering signs the price pressure could continue to ease.
EUR/USD made a strong start to the week and heads towards its first profitable month of the year, having the opportunity to challenge 1.0981, but we are cautious around its ascending prospects. The monetary policy differential is unfavorable, so the path of least resistance is down. As such, we can see renewed pressure to the EMA200 (at around 1.0800). Daily closes below it would shift bias to the downside again, but there are multiple roadblocks past that level. Markets now brace for Friday's US PCE and preliminary Eurozone CPI inflation updates that can shape rate expectations and determine the pair's next move.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 28 May 2024 https://www.ecb.europa.eu/press/inter/date/2024/html/ecb.in240527~ffaddc865d.en.html | |
| Retrieved 28 May 2024 https://www.suomenpankki.fi/en/media-and-publications/speeches-and-interviews/2024/governor-olli-rehn-price-dynamics/ | |
| Retrieved 12 Apr 2026 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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