• Market participants are almost certain that the ECB will cut rates on Thursday.

• The interest rate gap between the Eurozone and the US will widen.

• The US core PCE price index showed an increase of 0.2% in April, slower than the previous month’s 0.3% increase.

The EUR/USD forecast is bearish as investors gear up for a European Central Bank rate cut this week. Meanwhile, the dollar stabilized after Friday’s inflation miss, which led to an increase in bets for a Fed rate cut in September.

Market participants are almost certain that the ECB will cut rates on Thursday. This will likely weaken the euro against the dollar as the rate gap between the Eurozone and the US widens.

However, the path becomes less certain after Thursday, especially after last week’s Eurozone inflation report. Data on Friday revealed that inflation increased by 2.6% in May, bigger than the previous month’s 2.4% increase. This might cause the ECB to pause after Thursday, as inflation is moving away from the central bank’s target.

Meanwhile, the dollar had its first bearish month this year in May as US inflation eased, raising bets of a Fed rate cut in September. The first indicator of easing inflation was the Consumer Price Index report. More recently, the core PCE price index showed an increase of 0.2% in April, slower than the previous month’s 0.3% increase. Economists had expected the value to hold at 0.3%. Consequently, after the report, the likelihood of a Fed cut in September increased from 49% to 53%.

If inflation continues with this downtrend, the Fed will be under more pressure to cut interest rates in September. Still, this will come well after the ECB’s first cut.

EUR/USD key events today

• US final manufacturing PMI
• US ISM manufacturing PMI

EUR/USD technical forecast: Fluctuating between 1.0800 and 1.0880

On the technical side, the EUR/USD price trades in a range with support at 1.0800 and resistance at 1.0880. The sideways move came after a bullish trend that failed to continue beyond the 1.0880 resistance. Therefore, it is likely a corrective move that will lead to a continuation of the uptrend or a reversal.

The price is pushing lower within the range and has punctured the 30-SMA after retesting the range resistance. Consequently, bears are in the lead. If it closes below the SMA, it will likely fall to retest the range support.

https://www.forexcrunch.com/blog/2024/06/03/eur-usd-forecast-ecb-rate-cut-pressure-looms/