EUR/USD is under selling pressure and is trading lower near 1.1350, down from a peak of 1.1425. This decline is due to a stronger US Dollar, spurred by positive news about US-EU trade talks. The US Dollar Index has climbed by 0.4% to around 99.35, reflecting its strength against six major currencies. President Trump hinted at faster trade negotiations with the EU after postponing proposed tariffs.

Eurozone Inflation Update

In the eurozone, French inflation data revealed a monthly decrease of 0.2% and a year-on-year increase of 0.6%. This could prompt European Central Bank (ECB) officials to consider additional monetary easing. Opinions within the ECB vary about rate cuts in June. Some officials predict a rate reduction, while others, like Austria’s central bank governor, advise holding off. Financial markets expect a 25 basis point cut in the ECB Deposit Facility Rate. Upcoming inflation data from Germany, Spain, Italy, and the eurozone will be closely monitored. Technical analysis shows EUR/USD trading near 1.1350, above the 20-day Exponential Moving Average of 1.1277. If the Relative Strength Index exceeds 60.00, bullish momentum may increase, with resistance at 1.1475 and support at 1.1215. The recent drop in EUR/USD, now stabilizing around 1.1350, mainly results from a stronger US Dollar. This trend gained momentum after President Trump’s remarks improved hopes for quicker trade discussions between the US and EU. The US Dollar Index is now closer to 99.35, reflecting these developments. Markets welcomed the delay in additional tariffs, seeing it as an opportunity for better negotiations. On the European front, French inflation data showed a significant decline, with prices dropping by 0.2% month-on-month, easing the annual rate to 0.6%. These figures suggest that the ECB may lean towards more accommodating policies, potentially as soon as next month, as consumer prices in France appear low enough to require support.

ECB Policy Differences

However, there’s a noticeable split within the ECB. While some officials are leaning towards easing, as indicated by the market’s expectation of a 25 basis point rate cut, others, like Austria’s central bank governor Holzmann, advise caution. This divergence might create uncertainty in the ECB’s strategy, especially if upcoming inflation data varies across other large eurozone countries. We anticipate upcoming CPI figures from Germany, Spain, and Italy will influence the ECB’s position. Markets eager to understand European monetary policy should consider these readings critical. A strong reading from Germany, for example, could strengthen ECB hawks and lessen bearish pressure on the euro. Conversely, weak data from the region could reinforce rate cut expectations and drive EUR/USD to test technical support. From a technical perspective, prices remain above the 20-day Exponential Moving Average, suggesting some support for the upward trend. The relative strength index is nearing neutral levels, indicating balance between buyers and sellers. However, momentum could shift if the RSI surpasses the 60 mark. If resistance at 1.1475 breaks, this might indicate a larger shift against dollar strength. Conversely, a drop below support near 1.1215 could lead to a more significant correction. Currently, it’s essential to monitor how economic data and comments from policymakers align. While the chart provides some insights, upcoming fundamentals, especially inflation data and discussions about rates, will largely determine the next steps. Traders who adjust their risk based on these developments will be better equipped to handle upcoming volatility, especially as market reactions to central bank differences become more pronounced. Create your live VT Markets account and start trading now.

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