Euro Outlook: EUR/USD, EUR/GBP Price Setups Ahead of the ECB

Euro (EUR/USD, EUR/GBP) Analysis

  • US CPI forces markets to recalibrate rate cut expectations
  • US CPI beat sends EUR/USD lower – next level of support at 1.0700
  • EUR/GBP trades within familiar range
  • Get your hands on the EURO Q2 outlook today for exclusive insights into key market catalysts that should be on every trader's radar:

US CPI Forces Markets to Recalibrate Rate Cut Expectations

US CPI beat estimates across all major measures in March. Headline inflation rose from 3.2% to 3.5% with the month-on-month measure beating estimates to come in at 0.4%. Core inflation remained at 3.8% but beat estimates of 3.7%, also rising 0.4% on the month.

Successive month-on-month rises in inflation makes it difficult for the Fed to point to seasonality in the data as the reason for the rise now that we’ve received three months’ worth of data already.

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The ECB is largely expected to use the platform of the April meeting to point towards the start of the rate cutting process in June. Notable ECB officials have already communicated this timeline and therefore tomorrow’s announcement carries the risk that it may not be a huge market mover.

Market Implied Probabilities of rate cuts (shown in basis points, bps)

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Source: Refinitiv

Instead, markets may look for subtle clues on future policy via questions fielded to Christine Lagarde in the press conference following the announcement.

The June meeting will also come with updated staff projections which is likely to provide greater confidence to the governing council about the rate cut. Recent progress on inflation aligns with the notion of policy normalization and serves to motivate the committee to cut rates sooner than later.

US CPI Beat Sends EUR/USD Lower - Next Level of Support at 1.0700

EUR/ USD sank immediately after the hot CPI print as markets reigned in Fed cut odds, strengthening the dollar and weighing on EUR/USD. The euro has traded in a fairly robust manner despite recent drops in EU inflation – adding pressure on the ECB to cut rates.

EUR/USD tests the 38.2% Fibonacci retracement of the 2023 decline at 1.0765, with a potential to head towards the psychological 1.0700 level. The bearish impulse follows the more medium-term move that began when the pair found resistance around 1.0950.

EUR/USD Daily Chart

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