• ECB’s Francois Villeroy confirmed that the central bank will implement the first rate cut next week.

• Philip Lane said ECB rate cuts would depend on underlying inflation and demand.

• Data on Monday revealed that German business morale stagnated in May.

The EUR/USD outlook leans bullish as the euro gains despite dovish ECB comments. Markets expect the central bank to implement its first rate cut next week. However, a weaker dollar has kept the euro from falling. The greenback weakened as investors looked forward to more US inflation data.

European Central Bank policymakers have remained confident about the start of the central bank’s rate-cut cycle. ECB’s Francois Villeroy confirmed that the central bank will implement the first rate cut next week. Meanwhile, Philip Lane said rate cuts would depend on underlying inflation and demand. Therefore, there is no doubt about rate cuts. The only uncertainty is on the pace of cuts and what will happen after the June meeting.

Policymakers cannot ignore the fact that the Fed’s monetary policy will significantly impact the actions of other central banks. Therefore, although most major central banks are ready to start cutting rates before the Fed, they will be cautious after a few cuts.

Elsewhere, data on Monday revealed that German business morale stagnated in May and missed forecasts. Consequently, the economy might recover at a slower pace than expected.

Meanwhile, in the US, investors are awaiting the core PCE price index report, which will give further insight into the Fed’s policy. Economists expect the numbers to hold steady on a monthly basis. Any surprises could change the outlook for rate cuts. At the moment, markets are fully expecting the first cut in December. Meanwhile, there is a 60% chance that the Fed will cut rates in September.

EUR/USD key events today

• US CB consumer confidence

EUR/USD technical outlook: Bulls return with eyes on 1.0900

On the technical side, the EUR/USD price has gone from bearish to bullish after failing to maintain a move below the 30-SMA. Initially, bears took control when the price broke out of its bullish channel. However, they failed to go below the 1.0800 key level, allowing bulls to retake control.

At the moment, the price sits above the 30-SMA, and the RSI is above 50, which is bullish territory. Therefore, the price will likely climb to retest the 1.0900 resistance level. However, to confirm a continuation of the previous uptrend, bulls must break above 1.0900.

https://www.forexcrunch.com/blog/2024/05/28/eur-usd-outlook-euro-strengthens-despite-dovish-ecb/