Where we are: EUR/USD is trading at 1.1366, up 0.04% on the day. The pair has bounced off overnight lows, finding some support just above the 1.1350 mark. This move is modest, but it’s clawing back some of yesterday’s weakness and sits just below the prior New York close. The immediate range has been tight, but the undercurrent is one of cautious buying ahead of US data.
What’s driving it: The European Central Bank’s tightening bias remains the anchor for the single currency. Despite the recent energy shock pushing HICP to 3.2%, the ECB’s staff have revised inflation forecasts upwards, and markets are pricing in a roughly 50% chance of a September hike. This hawkish lean, even with inflation elevated, provides a floor for the Euro. While the US dollar remains a strong cross-currency driver, the ECB’s stance is currently dictating the near-term path for EUR/USD, overriding softer Eurozone macro prints like the 6.3% unemployment rate.
- ECB’s upward inflation revisions and hawkish bias, with markets pricing a ~50% chance of a September hike.
- Recent ECB commentary, including Isabel Schnabel’s interview, has reinforced the commitment to price stability without signalling an immediate pivot.
- The Eurozone unemployment rate holding steady at 6.3% provides a degree of labour market resilience, albeit not a strong growth signal.
NY session focus: The 08:30 ET US data dump is the immediate catalyst. Core PCE and Final GDP are the key prints. For EUR/USD, a print significantly above consensus for Core PCE would likely see the pair reverse lower, testing 1.1300. Conversely, a softer print could allow the Euro to push towards 1.1400, especially if risk sentiment improves. The key risk for this trade is a strong US inflation surprise that forces a rapid repricing of Fed expectations, overwhelming the ECB’s hawkish lean. The pain trade here is a sharp USD rally driven by US data, forcing the Fiber back towards the lower end of its recent range.