EUR/USD Forecast: First down, then up? Playbook for the ECB and CPI storm

  • EUR/USD has been edging lower as investors fear higher US inflation. 
  • The ECB is set to leave its policy unchanged and upgrade its forecasts. 
  • Thursday's four-hour chart is painting a mixed picture.

The big day has come – and some investors are already revealing their tensions. After several sessions of calm, the dollar has been on the rise ahead of the release of US Consumer Price Index figures for May. Has US inflation hit 5% in May? The specter of spiraling inflation has begun spooking some assets such as stocks and the dollar. 

However, Treasury yields have gone the other way. Returns on 10-year bonds have dipped under 1.50%, showing markets are not fully buying the theory that price rises are coming and with it a tapering of bond-buying by the Federal Reserve. The world's most powerful central bank convenes next week and is set to remain silent until that day. 

After Nonfarm Payrolls fell short of estimates, a not-so-horrible inflation figure could convince markets that the Fed is on course to sustain its $120 billion/month purchases untouched. More greenbacks mean a weaker currency.

US CPI May Preview: Inflation angst is coming

Tapering of bond buys is high on the agenda also on the other side of the pond. The European Central Bank is forecast to leave its policies unchanged on Thursday – the deposit rate at -0.50% and the total of its Pandemic Emergency Purchase Program (PEPP) at €1.85 trillion. However, there is an open question about the current pace of buying.

Back in March, the ECB announced an acceleration in purchases due to rising yields and a still-fragile economic recovery. The past three months have seen a massive vaccination campaign in the old continent and a return to normal. Is highly accommodative monetary policy still needed? 

Return to a normal pace of purchases could boost the euro, but there are reasons to expect the Frankfurt-based institution to continue supporting the economy. The mix of virus variant fears and lower inflation in the eurozone – only 2% on the headline and a meager 0.9% in Core CPI – may keep ECB President Christine Lagarde and her colleagues from acting. 

European Central Bank Preview: Why June's decision presents a buy the dip opportunity

Timing: The ECB announces its decision at 11:45 GMT, and if it refrains from cutting back on purchases, the euro could dip. At 12:30 GMT, the US publishes its CPI data, and Lagarde kicks off her press conference. A mix of a non-scary inflation figure and upgraded ECB growth forecasts could trigger a bounce in EUR/USD. 

While these are the main events of the day and the week, it is essential to note that leaders of the G-7 convene in London and any surprising announcement from President Joe Biden and others could rock markets. However, the leaked communique suggests no market-moving declarations are on the cards. 

EUR/USD Technical Analysis

Euro/dollar has dipped back below the 50 and 100 simple moving averages on the four-hour chart and momentum has flattened out. The pair trades above the 200 SMA. All in all, bears have taken back some ground, but the pair has been flat for some time now. 

Some support is at the daily low of 1.2160, followed by 1.2150 and 1.21, support lines on the way up.

Resistance is at 1.22, the round number that held it down last week, followed by 1.2220, Wednesday's peak, and then by 1.2255 and 1.2266. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD looks depressed below 1.2200 ahead of ECB, US inflation

EUR/USD remains on the back foot below 1.2200 ahead of a busy docket. The US dollar shrugs off weaker Treasury yields. The ECB eyed for economic outlook. The US CPI needs stronger-than-forecast print to keep the dollar afloat.


GBP/USD remains poised to drop below 1.4100, US CPI eyed

GBP/USD treads water above 1.4100 ahead of the London open. The US dollar remains steady and exerts pressure on the pair. Brexit concerns, Delta strain added to the British pound struggle. US inflation awaited.


Gold extends losses below $1,900 ahead of ECB, US inflation

Gold remains pressured for the third consecutive day below $1900 as sellers attack weekly bottom. US dollar trades firmer while Treasury yields nurse losses, as traders await the key US Consumer Price Index (CPI) and the European Central Bank (ECB) outcomes.

Gold News

Three reasons why Shiba Inu price may be ready to rally

Shiba Inu price decline has not been matched by increasing volume, suggesting it is not token specific. ShibaSwap decentralized cryptocurrency exchange (DEX) in testing mode, to be released to the public soon. Social volume stabilizes during another period of price weakness. 

Read more

US CPI May Preview: Inflation angst is coming

When the Federal Reserve moved its price measurement to inflation averaging last September the governors were carefully insulating rate policy from this year’s expected acceleration in consumer costs. 

Read more