The Euro (EUR) continues to rise, up 0.6% against the US Dollar (USD) in Monday’s trading session, with the overall dollar providing widespread weakness and some anticipatory investor behavior before this week’s European Central Bank (ECB) policy meetings.
With that said, this increase sees the EUR/USD pair remaining well above 1.14, and at its highest levels since the end of April, noted Scotiabank’s Chief FX strategist Shaun Osborne.
ECB Rate Cut Fully Priced, But Forward Guidance in Focus
Market consensus has priced in a 25 basis point cut from the European Central Bank (ECB) at next Thursday’s meeting, which the market has mostly fully priced in; however, the focus will be on the updated economic forecasts and forward policy guidance, since that could shape expectations for the remainder of 2025.
Recent ECB commentary has leaned dovish, but with market participants pricing in at least one more cut by December, there’s a risk of a “hawkish cut”—a scenario where the ECB lowers rates but signals a potential pause in the easing cycle.
“With markets pricing at least one more 25bp cut by December, the risk lies with a neutral or hawkish cut,” Osborne said, “with messaging that signals a possible end to the easing cycle.”
Eurozone Data Mixed Ahead of Key Inflation Report
Economic data released Monday showed a final euro area manufacturing PMI of 49.4, matching expectations, though still below the 50 expansion threshold. Germany’s reading came in slightly lower at 48.3, while France posted a modest upside surprise at 49.8.
The highlight of the week, however, will be Tuesday’s preliminary euro area CPI report, which is expected to show moderation. Forecasts call for headline inflation at 2.0% year-on-year and core CPI at 2.4%, both moving closer to the ECB’s 2% target.
EUR/USD Technical Outlook
On a technical basis, the EUR/USD pair has successfully broken through the key resistance zone of 1.14 and is now focused on the late April high at 1.1573. Additionally, the previous 50-day moving average of 1.1209 appears to be strong support after being only recently tested. The RSI is healthy and bullish, valued at 60, and has room for further upside without being overbought.
There is little immediate resistance ahead and a supportive macro backdrop with room to grow; therefore, the Euro stands to gain from the dovish clarity of the ECB and share of persistent USD weakness, unless and until economic surprises from the U.S. alter the prevailing view.
Conclusion
As EUR/USD climbs in anticipation of the ECB’s rate decision, traders should brace for volatility tied to inflation data and central bank communication. A confirmed rate cut is unlikely to shock markets, but forward guidance on future policy could decide whether the Euro extends its bullish trend or pauses for consolidation.
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