EUR/USD: Euro Slides as Eurozone Inflation Hits 7-Month Low of 1.9%. Rate Cuts? Highly Likely.

Cool inflation print arrives just two days before the ECB meets to decide interest rates. Expectations are set for another cut by 25 basis points.

📢 Inflation Drops Below Target

• The EURUSD pair shuffled lower Tuesday after the latest eurozone inflation report showed price pressures were easing up. Fresh data showed Eurozone inflation cooled to just 1.9% in May — its lowest reading in seven months and once again below the ECB’s 2% target.
• Traders didn’t take long to connect the dots: with price pressures easing, the European Central Bank now has more breathing room to dial back interest rates without risking overheating the economy (hopefully).
• The major currency pair slipped about 30 pips to hover near $1.14 as rate cut bets ramped up, with FX bros now all but pricing in a 25-basis-point move at Thursday’s policy meeting.

🎯 ECB Decision Looms

• With inflation softening and growth still sluggish, the ECB is widely expected to slash borrowing costs for yet another time this cycle. The only question now: how fast do they go?
• In April, the old continent’s central bank axed its benchmark interest rate to 2.25%. Markets are now pricing in interest rates of 2% — half of the high of 4% that was intended to cool off the economy back in 2023 when inflation was riding high.
• Any hint of a more aggressive rate-cutting path could pressure the euro further, especially if the Fed across the Atlantic sticks to its “higher for longer” messaging in contrast.

💶 Traders Eye Next Levels

• From a technical standpoint, the euro-dollar is now way above all the leading simple moving averages — $1.1220 for the 50-day, $1.0890 for the 100-day and $1.0820 for the 200-day moving average.
• What’s more, if Thursday’s ECB meeting turns out less dovish than expected, euro bulls might see an opportunity to reclaim $1.16 and go higher.
• For now, the pair is trading defensively, with every data point feeding into a broader macro chess match between two central banks headed in very different directions.