EUR/USD Latest – ECB Set to Cut Rates Next Week Despite Rising German Inflation

• German inflation y/y rose to 2.4% in May from 2.2% in April.
• Financial markets price in a 90%+ chance of a 25bp ECB rate cut next week.
• EUR/USD listless around 1.0850.

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Preliminary German inflation data for May shows annual inflation moving higher but monthly inflation moving lower. Annual inflation edged up to 2.4%, in line with market expectations, from 2.2%, while monthly inflation rose by just 0.1%, compared to expectations of 0.2% and a prior month’s reading of 0.5%. The final results will be published on June 12.

The ECB is set to start cutting interest rates next week, despite today’s data. Financial markets are currently pricing a 90%+ chance of a 25 basis point cut at next week’s monetary policy meeting. A second cut is nearly fully priced-in for the October 17 meeting, although the September meeting is live, with a third cut at the December meeting a strong possibility. It is now looking likely that the ECB will cut rates twice before the Fed begins to loosen monetary policy.

The Euro ignored today’s uptick in German inflation and remained in a tight 32-pip range against the US dollar. The main data release this week, US Core PCE on Friday at 13:30 UK, is currently stifling FX activity and volatility, leaving traders watching from the sidelines. EUR/USD closed Monday at 1.0857, opened and closed on Tuesday at 1.0857, and opened today’s session at 1.0857.

EUR/USD Daily Price Chart

Retail Trader Sentiment Analysis: EUR/USD Bias Remains Mixed

According to the latest IG retail trader data, 41.46% of traders are net-long on the EUR/USD pair, with the ratio of short to long positions standing at 1.41 to 1. The percentage of net-long traders has increased by 4.35% from the previous day but declined by 6.59% compared to last week. Simultaneously, the number of net-short traders has decreased by 10.27% from yesterday and 2.78% from last week.

Typically, contrarian trading strategies that go against the crowd sentiment tend to yield better results. With traders currently leaning towards a net-short bias, this could potentially signal further upside for the EUR/USD pair. However, the mixed positioning data, with a less net-short stance than yesterday but a more net-short stance compared to last week, suggests a mixed trading bias for the EUR/USD currency pair.

While retail trader sentiment can provide valuable insights, it is essential to consider other technical and fundamental factors when making trading decisions.

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