Euro Faces Pivotal Moment as ECB Rate Decision Looms

5 June 2025, 07:33

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Key Takeaways:

*The ECB interest rate decision is due today with the expectation of a 25 bps, which may pressure the euro.

*The eurozone CPI came short earlier, which fuels the chance of an ECB rate cut.

Market Summary:

The euro stands at a critical juncture ahead of today’s European Central Bank (ECB) monetary policy announcement, with markets bracing for potential volatility across European currency pairs. The single currency has demonstrated resilience in recent sessions, supported by better-than-expected PMI data suggesting economic stabilization across the Eurozone. However, the latest inflation figures present a more nuanced picture, with May’s headline CPI cooling to 1.9% year-over-year from April’s 2.2%, reinforcing expectations for policy easing.

Market consensus anticipates a 25 basis point reduction to the deposit facility rate, which would bring it to 2.15%. Such a move would reflect the ECB’s response to moderating price pressures and growing economic headwinds, particularly from U.S. trade policy uncertainties. The central bank’s updated inflation projections, forecasting 2.1% headline inflation for 2025, along with signs of softening growth, provide fundamental justification for policy accommodation.

This ECB meeting represents a watershed moment for the euro’s medium-term trajectory, with outcomes likely to establish trading parameters that could persist through the summer months. The interplay between monetary policy divergence, growth differentials, and risk sentiment will shape currency valuations in an environment where traditional correlations may prove less reliable than in previous cycles.

Technical Analysis

EURUSD, H4

The EUR/USD pair continues to trade within its established bullish trajectory, posting a 0.4% gain in the previous session. However, the failure to challenge the recent high of 1.1455 has created technical tension, particularly as the MACD indicator develops a concerning bearish divergence. This divergence pattern, where prices maintain their upward path while momentum indicators trend lower, traditionally serves as an early warning of potential trend exhaustion.

From a momentum perspective, the technical picture presents conflicting signals. The Relative Strength Index remains firmly planted above the 50 midline, which typically confirms bullish control, yet shows signs of flattening rather than accelerating. Meanwhile, the MACD’s gradual descent despite price gains suggests underlying weakness in buying pressure that may eventually translate to price declines.

The pair now faces a critical technical juncture. A decisive breakout above 1.1455 would invalidate the bearish divergence and likely reinvigorate the upward trend. Conversely, failure to maintain current levels could see the pair test initial support near 1.1350, with a breach there opening the door to a deeper correction toward 1.1300. The 1.1455 level therefore represents both a psychological and technical threshold that may determine the next directional move.

Resistance Levels: 1.1467, 1.1623
Support Levels: 1.1340, 1.1200