Euro Hands Back Some Gains As June ECB Rate Cut Remains On Table

Euro (EUR/USD) Analysis

• EUR/USD ticks lower again.
• However, it’s holding above $1.07
• Italian inflation, BoE decision in focus
• Supplement your trading knowledge with an in-depth analysis of the Euro‘s outlook, offering insights from both fundamental and technical viewpoints. Claim your free Q2 trading guide now!

The Euro remained under pressure against the United States Dollar on Wednesday. The Eurozone’s recent economic data have been decidedly mixed, but the thesis that the European Central Bank will be cutting interest rates before the Federal Reserve seems to be holding up pretty well.

ECB Chief Economist Philip Lane told a Spanish newspaper on Tuesday his confidence that inflation will head back to its 2% target in a ‘timely manner’ had increased. This was taken by the markets as keeping the clear possibility of a June rate reduction in play, whereas no action is expected from the Fed until September.

Of course, both scenarios are hugely data-dependent. The latest Eurozone numbers suggest resilience in the service sector but a harder time for both manufacturing and retail. Factory gate prices continue to retreat. As these can lead consumer price action it’s perhaps unsurprising that the Euro should be struggling to gain.

The ECB won’t set interest rates again until June 6, and the wait could seem like a long one for Euro watchers.

The coming session doesn’t offer much in the way of scheduled, likely trading cues for EUR/USD, but Thursday’s might. It offers inflation data from Italy, the Eurozone’s third-largest economy and an interest rate decision from the Bank of England. This isn’t expected to produce any monetary action – markets think a September cut is probable on available clues. But the British central bank’s commentary could be a mover for EUR/GBP.

EUR/USD Technical Analysis

EUR/USD Daily Chart Compiled Using TradingView

It’s unclear whether the Euro is topping out or merely consolidating after the gains made at the start of May.

The latter might be marginally more likely on the current showing, with the broad uptrend channel from mid-April still very much in place. It’ lower bound is still quite far below the current market, coming in at 1.06903 on Wednesday, probably too far down for an immediate test.

The Euro remains below both its 200- and 50-day moving averages, which are now extremely close to each other just above the market. It’s hard to believe that Euro bulls won’t try and top these, at least, in the near future. If they can manage that, the uptrend will remain very much in place. Above it, the downtrend line from late December’s peaks will offer a firm challenge.

Still, the pair is also close to retracement support at 1.07206. A slide below that could threaten a revisit to May 1’s lows, perhaps at least. They come in at 1.06480.

It’s also worth bearing in mind that, while the technical picture is arguably quite bullish, the fundamental backdrop is less so and it might be wise to treat gains with caution in a market where monetary realities tend to reassert themselves.

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By David Cottle for DailyFX