The EUR/USD currency pair traded steadily just below the key 1.1400 psychological level on Wednesday, lingering around 1.1380 during the Asian session. Despite mild fluctuations, the pair remains resilient as the US Dollar (USD) grapples with macroeconomic uncertainty, and the Euro (EUR) receives marginal support from shifting monetary policy expectations in the Eurozone.
Market participants are closely monitoring a combination of US labor market data, inflation trends, and central bank actions, all of which are shaping the short-term outlook for the world’s most traded currency pair. In the article, Raliplen’s brokers deliver an insightful and thorough analysis of the subject.
Eurozone Inflation Falls Below Target: Policy Shift Imminent?
The most significant recent development supporting the Euro has been the unexpected drop in Eurozone inflation, which could influence the European Central Bank (ECB)’s upcoming rate decision.
The Harmonized Index of Consumer Prices (HICP) for May declined to 1.9% year-over-year, sliding below the ECB’s long-standing 2% inflation target for the first time in eight months. The Core HICP, which strips out volatile items such as food and energy, also eased to 2.3% YoY from 2.7% in April, highlighting a broader disinflationary trend.
This inflation print bolsters market expectations that the ECB will move forward with monetary easing, with analysts widely anticipating a 25 basis point cut in the Deposit Facility Rate, bringing it down to 2.00%.
Rate markets have nearly fully priced in the cut at the upcoming ECB meeting, which may lend short-term support to EUR/USD, especially if the decision is accompanied by dovish forward guidance or a potential path for further rate reductions.
USD Pressured by Mixed Labor Data and Economic Uncertainty
Meanwhile, the US Dollar Index (DXY) continues to show signs of strain, trading under pressure amid a mix of economic uncertainty, rising trade policy risks, and evolving Federal Reserve expectations.
One of the key data releases impacting the USD this week was the Job Openings and Labor Turnover Survey (JOLTS) for April, which revealed that 7.39 million job openings were posted, well above both the 7.2 million in March and the 7.1 million expected by economists.
While the JOLTS data suggests labor market resilience, it hasn’t fully reassured markets. The focus now turns to the upcoming Nonfarm Payrolls (NFP) report for May, due Friday. The consensus anticipates a modest 130,000 job additions, but a stronger-than-expected print could offer the Greenback some respite by delaying Fed rate cut bets.
Still, many traders are wary. Recent Fed commentary has highlighted a growing debate over whether policy easing is warranted. At the same time, tariff-related uncertainty, especially concerning China, continues to cloud the US economic growth outlook.
Trade Tensions Add Complexity to USD Trajectory
Trade tensions are also feeding into investor caution. Over the weekend, US Treasury Secretary Scott Bessent said the US President and China’s President Xi Jinping are expected to meet soon to resolve their differences on trade. While this may reduce the risk of a further escalation, the path to a lasting resolution remains unclear.
On Monday, China’s Ministry of Commerce claimed it had complied with existing trade agreements by cancelling or suspending tariffs on US goods. However, the US President’s recent accusations that China had violated a truce suggest the situation remains fluid.
A deterioration in US-China trade relations would likely stoke fears of a global economic slowdown, undermining the US Dollar’s appeal as a safe-haven currency, especially if risk sentiment weakens further.
Technical Outlook: EUR/USD Eyes 1.1400 Break
From a technical perspective, EUR/USD’s consolidation near 1.1380 marks a critical phase. The pair is recovering slightly after posting losses in the previous session, but faces immediate resistance near 1.1400, a level that has capped upside moves in recent weeks.
A clear break above this threshold could open the door for further gains toward 1.1450 and 1.1500, provided that US economic data underwhelms or the ECB does not over-deliver on dovish expectations.
On the downside, immediate support lies around 1.1340, followed by 1.1300, where renewed USD strength—possibly driven by a positive NFP surprise—could attract sellers.
Conclusion: All Eyes on Central Banks and Labor Reports
In summary, EUR/USD’s movement below 1.1400 is emblematic of a market in wait-and-see mode. With the Eurozone HICP surprising to the downside and the ECB poised to cut rates, attention shifts to whether the Fed might follow suit amid weakening US data.
Meanwhile, the USD’s fragile state, exacerbated by global trade frictions, may provide a cushion for the Euro despite its headwinds.
As such, the upcoming ECB decision and US NFP report could set the tone for EUR/USD’s next big move, potentially redefining currency trends into the summer trading period. Until then, the 1.1400 mark remains the battleground, and a key barometer for evolving economic narratives on both sides of the Atlantic.
