EURUSD Softens Amid Weak CPI Readings; Market Eyes ECB Rate Decision
The EURUSD pair is losing ground as it drifts toward the 1.1400 level in early Tuesday trading, pressured by weaker-than-expected inflation data from the Eurozone. After reaching a recent high of 1.1450 on Monday, the currency pair is trading at 1.1410 as of this writing, as investors digest the latest CPI numbers and brace for a potentially dovish stance from the European Central Bank (ECB) later this week.
The headline Consumer Price Index (CPI) for May showed a notable moderation, with the yearly rate dipping below the ECB’s 2% target for the first time in eight months. The Core CPI, which excludes food and energy, also decelerated more than expected, reinforcing bets that the ECB could extend its rate-cutting cycle.
Eurozone Inflation Cools: ECB Rate Cut Looks Imminent
May’s CPI data revealed that inflationary pressures across the Eurozone are easing faster than anticipated. The headline inflation rate stagnated on the month and declined to 1.9% YoY, down from 2.2% in April. This is the first time since September 2024 that the reading has fallen below the ECB’s medium-term target.
Core CPI also painted a dovish picture, holding flat month-on-month and slowing to 2.3% YoY, compared to 2.7% in the prior month. Analysts had forecast a modest slowdown to 2.5%, but the larger-than-expected drop underscores weakening demand across the region.
This moderation in inflation comes at a crucial time. The ECB is widely expected to announce its eighth consecutive interest rate cut this Thursday. ECB President Christine Lagarde has signaled a data-dependent approach, and this latest CPI release gives the central bank ample justification to ease policy further in an effort to revive sluggish economic activity.
US Dollar Weakness Limits EURUSD Downside
Despite the Euro’s softness, the downside in EURUSD remains relatively limited due to persistent weakness in the US Dollar. The US Dollar Index (DXY) has been struggling below the 99.00 handle, weighed down by concerns over economic momentum, erratic trade policies, and fiscal instability in the US.
Recent data has done little to support the Greenback. May’s ISM Manufacturing PMI dropped to a six-month low of 48.5, missing expectations of a rebound to 49.5. While new orders and employment showed minor upticks, overall factory activity contracted, reflecting the negative impact of US trade tariffs and supply chain uncertainties.
US President Trump’s inconsistent trade stance and concerns over rising budget deficits are further eroding investor confidence in the Dollar. In turn, this has prevented EURUSD from falling more aggressively despite bearish Eurozone fundamentals.
Germany’s Manufacturing Woes Highlight Broader Eurozone Weakness
Germany, the Eurozone’s economic powerhouse, continues to underperform. May’s Manufacturing PMI for the country was revised down to 48.3, from the initial estimate of 48.8, indicating ongoing contraction in the industrial sector.
While the broader Eurozone manufacturing PMI held steady at 49.4, marking the fifth consecutive monthly improvement, it’s still below the 50 threshold that separates expansion from contraction. The euro has shown resilience in recent weeks, but such readings underscore lingering structural headwinds across the bloc.
Despite this, markets are largely pricing in the ECB’s dovish trajectory, and the muted impact on EUR/USD suggests that much of this economic softness has already been baked into current exchange rates.
US Data Calendar: Key Labor Metrics Ahead
Looking ahead, investors will focus on a series of US labor market data releases, starting with Factory Orders and JOLTS Job Openings. Factory orders are expected to have declined by 3.0% MoM in April, following a sharp 3.4% increase in March. A downside surprise here could reignite concerns over US industrial momentum and add further pressure to the Dollar.
The JOLTS report, due later today, is expected to show job openings steady at 7.1 million for April. This release marks the start of a pivotal week for US employment data, culminating in Friday’s Nonfarm Payrolls (NFP) report — arguably the most closely watched indicator for gauging the Fed’s policy direction.
With the Fed currently maintaining a cautious, data-driven stance, signs of labor market softening could revive expectations for rate cuts later this year. This would likely weigh further on the Greenback and potentially support EUR/USD near key levels.
EURUSD Technical Outlook: Eyes on 1.1400 and 1.1450 Levels
From a technical standpoint, EURUSD is entering a consolidation phase after its strong rally from the May lows around 1.1250. The pair briefly tested resistance at 1.1450 but failed to sustain momentum amid the weaker Eurozone CPI report.
The next immediate support lies at 1.1400, a psychological and technical pivot. A break below could open the door for a deeper pullback toward 1.1350 and 1.1315, where the 20-day and 50-day moving averages converge.
On the upside, sustained strength above 1.1450 could target the 1.1500 handle, with further bullish potential toward 1.1535, the March high.
Momentum indicators such as the RSI and MACD on the 4-hour chart are showing signs of mild bearish divergence, suggesting that near-term consolidation or a modest retracement is likely.
Currency Heatmap: EUR Struggles, NZD Shows Strength
According to the latest currency performance heatmap, the Euro (EUR) is showing mixed results against major peers. It is down against the USD, JPY, and CHF, but has gained modestly versus the AUD and NZD.
Notably, the New Zealand Dollar (NZD) emerged as the strongest currency of the day, reflecting a shift in risk sentiment and possibly expectations of a hawkish Reserve Bank of New Zealand (RBNZ).
Here are the Euro’s notable percentage changes:
- EURUSD: -0.22%
- EURGBP: -0.04%
- EURJPY: -0.18%
- EURCHF: -0.15%
- EURNZD: +0.41%
- EURAUD: +0.35%
While the Euro’s losses are modest overall, the trend reflects caution ahead of the ECB rate decision.
EURUSD: Key Takeaways
- EURUSD trades lower at 1.1410 as Eurozone CPI falls below 2%, raising ECB rate cut odds.
- ECB rate cut expected Thursday; Lagarde to maintain data-dependent guidance.
- US Dollar remains weak, pressured by soft ISM data, Trump trade chaos, and fiscal worries.
- Germany’s PMI underwhelms, highlighting Eurozone industrial fragility.
- US labor data in focus: JOLTS, Factory Orders, and NFP could be pivotal for USD.
