The EUR/USD pair trades just above the 1.1400 mark during Thursday’s early European session, after easing slightly in a quiet Asian session. Investors are largely on hold ahead of the European Central Bank (ECB) interest rate decision, expected later in the day. The pair had reached as high as 1.1435 on Wednesday, but lost momentum as cautious sentiment returned to the market.
The Euro is supported by broad-based US Dollar (USD) weakness following a string of disappointing US economic data this week. However, the shared currency has failed to capitalize fully, as traders remain wary ahead of the ECB meeting, which could determine the near-term direction of the EUR/USD.
ECB Likely to Cut, Lagarde’s Tone in Focus
Markets expect the ECB to deliver a 25 basis point rate cut, bringing the deposit facility rate to 2.0%—its lowest since January 2023. While the rate move itself is fully priced in, investors are focused on ECB President Christine Lagarde’s forward guidance. She is likely to stick to a cautious, data-dependent message, with analysts expecting her to avoid committing to a July cut.
Still, Eurozone fundamentals have weakened, with sluggish growth and moderating inflation supporting the case for further easing. ECB watchers, including Jack Allen-Reynolds of Capital Economics, forecast two additional cuts in September and December.
US Dollar Pressured by Recession Worries
Meanwhile, the USD remains under pressure following a slew of poor macroeconomic indicators. The ISM Services PMI slipped into contraction territory at 49.9 in May, its first sub-50 reading since mid-2024, reinforcing recession fears. This follows earlier data showing a decline in US manufacturing and factory orders.
Private sector job growth also disappointed. ADP’s employment report showed only 37,000 new jobs in May, far below the 115,000 expected and casting doubt on Friday’s Nonfarm Payrolls (NFP) report. Together, these data points triggered a pullback in the US Dollar Index (DXY), despite a temporary lift earlier in the week.
US trade policy remains another source of uncertainty. President Donald Trump’s doubling of tariffs on steel and aluminum imports came into effect Wednesday. Trump also voiced frustration with Chinese President Xi Jinping, noting it remains “extremely hard to make a deal,” adding to fears of renewed trade tensions between the world’s two largest economies.
Technical Picture: EUR/USD Lacks Clear Direction
From a technical standpoint, EUR/USD’s bullish momentum appears to be fading. The pair’s advance stalled below 1.1460—key resistance and the trigger for a potential continuation toward 1.1545, where the April 22 high aligns with a trendline cap.
On the four-hour chart, the Relative Strength Index (RSI) has flattened near the 50 mark, reflecting indecision. Wednesday’s lower high, despite soft US data, signals a potential shift in sentiment, with 1.1400 now acting as pivotal support. A break below the mid-1.1300s could open the door for a deeper retracement.
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