The Euro is in positive territory on Thursday. In the North American session, EUR/USD is trading at 1.0840, up 0.37% from the previous day.
Eurozone inflation expected to rise to 2.5%
The week will conclude with euro zone inflation release on Friday. Markets are expecting 2.5% year-on-year growth in May, down from 2.4% in April. Core inflation is expected to rise to 2.8% year-on-year from 2.7%.
In Germany, the euro zone's largest economy, inflation accelerated to 2.4% in May after rising 2.2% year-on-year for the previous two consecutive months. It was the first increase in German inflation in five months. On a monthly basis, inflation fell to 0.1%, down sharply from a 0.5% increase in April.
The timing of the euro zone CPI release is important, as it comes just before the European Central Bank's interest rate meeting on June 6. The ECB has strongly signaled it intends to cut interest rates at the meeting, and it would come as a surprise to markets if the ECB changes its mind.
With inflation below 3% and the euro zone struggling with weak economic activity, the conditions seem ripe for a rate cut. The ECB's rate-hiking cycle has been effective in keeping inflation in check, and a rate cut would provide some relief to households struggling with high interest rates and the rising cost of living.
In the United States, the second GDP forecast was revised down to 1.3% y/y, below the first estimate of 1.6% but above market expectations of 1.2% and significantly weaker than the 3.4% increase in the fourth quarter of 2023. The decline in GDP was mainly due to weakness in consumer spending, with consumers yet to see any relief from the Fed's high benchmark interest rate target of 5.25% to 5.50%.
The Fed remains concerned about stubbornly high inflation, and FOMC members continue to pour cold water on rate cut expectations. The Fed has signaled its patience, and may even hold off on rate cuts until 2025 if inflation does not improve.
EUR/USD Technical
- EUR/USD broke out of the 1.0806 resistance and is now testing the 1.0845 resistance.
- The next support levels are 1.0765 and 1.0726
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