- Market participants are almost certain that the ECB will cut rates on Thursday.
- The interest rate gap between the Eurozone and the US will widen.
- The core US PCE price index rose 0.2% in April, slower than the previous month’s 0.3% rise.
The EUR/USD forecast is bearish as investors brace for a European Central Bank rate cut this week. Meanwhile, the dollar steadied after Friday’s inflation boosted bets for a Fed rate cut in September.
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Market participants are almost certain that the ECB will cut rates on Thursday. This is likely to weaken the euro against the dollar as the exchange rate gap between the eurozone and the US widens.
However, the path becomes less certain after Thursday, especially after last week’s Eurozone inflation report. Data on Friday showed that inflation rose 2.6% in May, up from a 2.4% rise in the previous month. This could lead to an ECB pause after Thursday, as inflation moves away from the central bank’s target.
Meanwhile, the dollar had its first bear month of the year in May as US inflation eased, boosting bets on a Fed rate cut in September. The first indicator of easing inflation was the Consumer Price Index report. Most recently, the core PCE price index showed a 0.2% increase in April, slower than the previous month’s 0.3% increase. Economists expected the value to remain at 0.3%. Accordingly, after the report, the probability of a Fed tapering in September rose from 49% to 53%.
If inflation continues this downward trend, the Fed will be under more pressure to cut interest rates in September. However, this will come after the first tapering by the ECB.
EUR/USD key events today
- US final manufacturing PMI
- US ISM manufacturing PMI
Technical forecast EUR/USD: Fluctuating between 1.0800 and 1.0880
On the technical side, EUR/USD is trading in a range with support at 1.0800 and resistance at 1.0880. The sideways move followed a bullish trend that failed to continue beyond the 1.0880 resistance. Therefore, a corrective move that will lead to a continuation of the uptrend or a reversal is likely.
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The price is moving lower within the range and has broken the 30-SMA after retesting the range resistance. Accordingly, the bears are leading the way. If it closes below the SMA, it will likely fall to retest the range support.
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