The EUR/USD exchange rate will be in the spotlight in the next two days as the European Central Bank (ECB) delivers its interest rate decision and the US publishes the latest nonfarm payrolls (NFP) data. It was trading at 1.1420, up from last month’s low of 1.1060.
ECB interest rate decision
The main EUR/USD news will be Thursday’s ECB interest rate decision. Economists expect the bank to slash interest rates by 0.25% as it supports the economy because of Donald Trump’s tariffs.
The case for a rate cut rose this week when Eurostat published the latest European consumer inflation data. The number showed that the bloc’s inflation dropped below 2% for the first time in months.
European inflation has dropped because of the strong euro, which has jumped by over 10% from its lowest point this year. A stronger euro lowers European inflation by making energy costs more affordable.
Economists believe that the ECB will deliver another rate cut by the end of the year, bringing the official cash rate to 1.75%.
The EUR/USD pair will likely have a muted to the ECB decision, as it has done in the past, since market participants have priced them in. In a note, analysts at ING said:
“The ECB meeting is the main event for EUR rates, but with markets fully priced for a cut, the reaction to such an outcome should be muted, in particular if the ECB offers little further guidance.”
In theory, the EUR/USD pair should be in a downward trend for two reasons. First, global risks are still elevated because of Donald Trump’s policies, which would boost the US dollar, which is often seen as a safe-haven currency.
Second, the EUR/USD should be falling because of the carry trade situation. Carry trade is the practice of borrowing in a low-interest rate currency to invest in a high-yielding one.
US NFP data ahead
The next key catalyst for the EUR/USD pair will be Friday’s nonfarm payrolls (NFP) data, which will shed more color on the state of the economy.
These numbers come two days after ADP sent shockwaves after publishing the private payrolls report on Wednesday. ADP said that the economy created just 37k jobs in May, the worst performance in months.
Donald Trump used the jobs data to press Jerome Powell, the Federal Reserve Chair to cut interest rates. The Fed has hinted that it will wait and see before cutting rates as it observes impact of Trump’s tariffs.
Economists expect the jobs report to show that the economy created 117k jobs in May even as companies dealt with Trump’s tariffs.
Trump has continued to warn of more tariffs recently. He has already boosted steel and aluminium tariffs to 50%, and warned that China was not fulfilling its obligations as per the recent deal.
EUR/USD technical analysis
The outlook for the EUR/USD pair is bullish because it has formed a giant cup-and-handle pattern. The upper side of the cup is at 1.1452 and the lower side is at 1.0185. This gives it a depth of 9.21%.
Now, measuring the same distance from the cup’s upper side gives it a target of 1.2232, which is about 7.1% from the current level. For this to happen, the pair needs to move above the key resistance at 1.1570, the highest point in April. Moving above that level will invalidate the forming double-top pattern.
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