Eurozone flash May HICP inflation printed at 3.2% year-on-year, matching forecasts and up from 3% in April, while core HICP rose to 2.5% versus a 2.4% consensus and 2.2% previously. On the month, headline prices edged up 0.1% and core prices increased 0.3%. The release was dated Tue 02 Jun 2026 at 09:00 and was described as preliminary by Eurostat, which publishes the harmonised gauge monthly.

EUR/USD traded near 1.1640 after the data and was still slightly above Monday’s 1.1631 close. Markets are leaning towards the prospect of an European Central Bank rate increase at next week’s meeting, a view supported by firmer core inflation alongside energy-related pressures linked to constrained flows through the Strait of Hormuz. On the charts, EUR/USD was around 1.1641, with the 20-day EMA at 1.1656 and the RSI at 46.7; resistance sits at 1.1656, then the May 29 high of 1.1685, while support is flagged at the May 21 low of 1.1576 and a deeper level at 1.1500.

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Eurozone Inflation Dynamics and ECB Policy Outlook

Given that today is June 2nd, 2026, the higher-than-expected core inflation reading is a significant signal for us. We see this 2.5% figure not as a one-off event, but as confirmation that underlying price pressures in the Eurozone are persistent. This reinforces our view that the European Central Bank (ECB) will act to protect its credibility.

The ECB’s policy meeting next week is now the central event on our horizon. Recent commentary from several governing council members has already prepared the market for a hawkish stance, and this data provides the perfect justification. Money markets are now pricing in an 85% probability of a 25 basis point rate hike, up from just 60% last week.

We should recall the 2022-2023 period when the ECB was perceived as being behind the curve on inflation. The institution will be keen to avoid repeating that mistake, suggesting a high probability they will follow through with a rate hike. This historical context makes a dovish surprise much less likely.

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EUR/USD Strategy and Technical Considerations

Considering this, we believe the market is still underpricing the Euro’s potential strength. The recent sideways trading in EUR/USD around 1.1640 presents an opportunity before a potential breakout. We are positioning for a move higher, driven by widening interest rate differentials against the US dollar.

Specifically, we are looking at buying EUR/USD call options with a strike price around 1.1700, expiring in late June. This strategy allows us to capitalize on a potential upward move following a hawkish ECB decision. The current low momentum, indicated by the RSI at 46.7, suggests we can enter this position before volatility increases closer to the meeting.

While our primary view is bullish on the Euro, we must acknowledge the technical resistance at the 20-day EMA near 1.1656. A failure to break above this level could see the pair test support toward 1.1576. Therefore, our options strategy provides a defined-risk approach to trade our fundamental view.