EUR/USD edges lower near 1.1380 in early Asian trading hours on Wednesday as traders digest the Eurozone’s falling inflation and the potential for an imminent ECB rate cut. Meanwhile, the US Dollar remains on uncertain ground amid trade tensions and upcoming labor data.
Eurozone Inflation Slips Below 2% – ECB Rate Cut Likely
The latest data from the Eurozone revealed that the Harmonized Index of Consumer Prices (HICP) dipped to 1.9% YoY in May, falling under the European Central Bank’s 2% inflation target for the first time in eight months. Core HICP, which excludes food and energy prices, also dropped to 2.3% from 2.7% in April.
This softer inflation data reinforces expectations that the ECB may slash its Deposit Facility Rate by 25 basis points to 2% at its next monetary policy meeting. Markets have largely priced in the rate cut, which could weigh on the euro’s strength in the near term.
EUR/USD Technical Analysis: Support Holds but Momentum Wavers
- Current Price: 1.1367
- Key Resistance: 1.1572 (YTD high), followed by 1.1600 and 1.1692 (October 2021 high)
- Support Levels: 1.1183 (55-day SMA), 1.1064 (May low), 1.1000 psychological level
- Long-Term Support: 200-day SMA at 1.0816
While the pair remains well-supported above its 200-day SMA, the ADX at 19 suggests that upward momentum may be softening. However, the RSI near 56 indicates that bullish pressure remains in play.
US Dollar in Focus: Jobs Data and Trade Developments Ahead
The US JOLTS report surprised markets with 7.39 million job openings in April, topping expectations and fueling optimism for a robust US labor market. Attention now shifts to the Nonfarm Payrolls (NFP) report for May, expected to show 130K new jobs. A stronger-than-expected figure could boost the USD and weigh on EUR/USD.
On the geopolitical front, traders are watching for progress in US-China trade negotiations. US Treasury Secretary Scott Bessent hinted at an upcoming meeting between Trump and Xi Jinping, aimed at resolving ongoing tariff disputes. Any breakthrough could revive risk sentiment and potentially strengthen the dollar.
EUR/USD Forecast: Will Inflation and NFP Shift the Trend?
With the Eurozone’s inflation cooling and the ECB rate decision imminent, the EUR/USD remains in a fragile zone near 1.1380. If the ECB delivers a dovish surprise and the US NFP beats expectations, the pair may slide toward the 1.1180–1.1000 support zone.
Conversely, any signs of US economic weakness or a less dovish ECB tone could propel EUR/USD above 1.1400, with the next resistance at 1.1572 in focus.
Key Takeaways
- Eurozone inflation dropped to 1.9%, below the ECB’s 2% target.
- ECB expected to cut rates by 25bps to 2%.
- EUR/USD remains above its 200-day SMA; technical outlook is mildly bullish.
- Traders eye the US NFP data and ECB meeting for the next big move.
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