EURUSD Softens as Services Rebound Fades and CPI Miss Supports Dovish ECB Outlook
The EURUSD pair is consolidating below the psychological 1.1400 barrier on Wednesday after retreating from six-week highs near 1.1455. A brief boost from improved Eurozone Services PMI data faded quickly as softer inflation readings and a looming European Central Bank (ECB) interest rate cut weigh on the common currency. Meanwhile, the US Dollar remains supported by robust labor data and cautious Fed rhetoric, pushing the pair into a narrow range as traders await fresh direction from US employment figures and the ECB decision.
Eurozone Services PMI Revision Offers Temporary Relief
The Euro found support early Wednesday after the final reading of the Eurozone’s HCOB Services PMI was revised up to 49.7 for May from the preliminary estimate of 48.9. Though still in contraction territory (below 50), the revision suggested that the services sector is faring slightly better than previously thought, especially amid persistent weakness in demand. The data showed four straight months of declining new business, yet employment continued to rise and business confidence ticked up, hinting at underlying resilience.
Despite this, the Euro’s gains were short-lived. Investors remain focused on the broader narrative: a slowing Eurozone economy with inflation now retreating below the ECB’s 2% target. The composite picture implies that the ECB’s easing cycle is likely to begin on Thursday, capping the upside potential for the Euro.
Eurozone CPI Miss Reinforces ECB Dovish Expectations
Tuesday’s Eurozone Consumer Price Index (CPI) report confirmed that inflation is cooling faster than expected. Headline CPI fell to 1.9% YoY in May, down from 2.4% in April and below the ECB’s 2% target. Core inflation eased to 2.3%, versus expectations of 2.5%.
This marks the first time headline inflation has dropped below the central bank’s mandate since early 2021. The decline strengthens the case for a 25 basis point rate cut on Thursday, which markets are now pricing with near certainty. The ECB’s policy meeting, which began today, is expected to conclude with the announcement of the rate cut followed by President Christine Lagarde’s press conference — where the forward guidance will be under intense scrutiny.
Key questions for traders:
- Will Lagarde hint at another cut in July?
- Will the ECB shift to a data-dependent approach?
- How concerned is the ECB about weakening demand and falling services activity?
Markets will be particularly sensitive to Lagarde’s tone, as any suggestion of further easing could pressure the Euro toward fresh monthly lows, especially if US data surprises to the upside.
US Dollar Rebounds After Strong Job Openings, Ahead of Key Labor Reports
While the Euro is grappling with dovish signals from the ECB, the US Dollar has staged a modest recovery after bouncing off its lowest levels since late April. Tuesday’s JOLTS Job Openings report showed that there were 7.39 million openings in April, beating expectations of 7.1 million and marking an increase from March’s 7.2 million. The data reflects continued tightness in the US labor market and boosts optimism about economic momentum despite high borrowing costs.
At the same time, however, Factory Orders fell more than expected in April — contracting 3.7% versus the forecast of -3.0%. This underscores the toll that trade tensions and higher tariffs may be taking on the manufacturing sector. Still, the solid labor market data has tempered the urgency for the Fed to deliver immediate rate cuts.
US Services PMI and ADP Employment Report in the Spotlight
Markets are now turning their attention to two key US economic releases scheduled for later today:
- ADP Private Sector Employment
Forecasts suggest an increase of 115,000 jobs in May, compared to 62,000 in April. A stronger-than-expected reading would reinforce the Fed’s cautious stance on cutting rates, providing fresh support to the USD and possibly dragging EURUSD back toward 1.1350. - ISM Services PMI
Expectations are for modest growth in services activity, which could help balance out the weak factory orders data and further highlight the divergence in economic resilience between the US and the Eurozone.
Both releases will help shape expectations for the Nonfarm Payrolls (NFP) report due Friday. Currently, consensus sees payrolls growing by 190,000, but today’s reports will set the tone for that crucial event.
ECB vs Fed: A Widening Policy Gap?
With the ECB poised to begin its rate-cutting cycle and the Fed still hesitating, the monetary policy divergence between the US and Eurozone is coming back into focus.
ECB:
- Almost certain to cut rates by 25 bps on Thursday.
- Inflation is now below target.
- Services and manufacturing show signs of stagnation.
- Likely to adopt a wait-and-see approach after this week’s cut.
Fed:
- Inflation is still above 2%.
- Job market remains strong.
- Policy rate is likely to remain steady until at least September.
- Market pricing now suggests two cuts in 2025, but Fed speakers remain noncommittal.
This divergence limits EURUSD upside unless the Fed shifts decisively toward an easing bias, or Eurozone growth data surprises to the upside.
Geopolitical Tensions and Trade Risks Also in Play
Beyond economic indicators, geopolitical tensions and trade policy are casting a shadow over both currencies. The US has officially increased steel and aluminum tariffs to 50%, effective today. Meanwhile, a potential phone call between US President Donald Trump and Chinese President Xi Jinping is expected later this week. The outcome could determine whether markets return to “risk-on” mode or brace for another round of global trade uncertainty.
For the Euro, continued political fragmentation in the EU and the upcoming French elections also introduce domestic risks that could temper investor appetite for Euro-denominated assets.
Technical Analysis: EURUSD Faces Strong Resistance at 1.1400-1.1450
From a technical standpoint, EURUSD remains vulnerable below 1.1400. The recent rejection near 1.1455 — a multi-week high — suggests a possible double-top formation unless buyers reclaim the level decisively.
Key levels to watch:
- Resistance: 1.1400 (psychological), 1.1455 (swing high), 1.1490 (March highs)
- Support: 1.1350 (intraday low), 1.1300 (trendline support), 1.1270 (50-DMA)
Momentum indicators are mixed, with RSI near neutral and MACD still positive, but fading. A break below 1.1350 could invite a test of 1.1300 and possibly shift sentiment bearish ahead of the ECB press conference.
Conclusion: Waiting Game as Central Banks and Jobs Data Collide
EURUSD remains range-bound ahead of high-impact events. On one hand, the Euro is under pressure from dovish ECB expectations, soft inflation, and lingering concerns over growth. On the other, the US Dollar faces its own headwinds, including slowing factory activity and trade policy risks.
Today’s ADP employment and ISM Services PMI readings, followed by Thursday’s ECB rate decision, and capped by Friday’s NFP report, will provide pivotal direction for the pair. Until then, consolidation below 1.1400 is likely to persist.
Unless the ECB surprises with a hawkish tone or US data disappoints, the broader bias favors the USD — especially if the Fed remains in “wait-and-see” mode.
