April ECB Meeting Likely to be a Prelude for a June Cut

Euro Weekly Forecast: Mixed

• Watching the ECB for changes in language as disinflation continues
• EUR/USD steadies around the 200-day simple moving average
• EUR/GBP bulls have work to do to chart a new course
• See what our analysts foresee for the euro in the second quarter by reading our brand new euro Q2 forecast:

Watching the ECB for Changes in language as Disinflation Continues

The ECB is scheduled to decide monetary policy on Thursday where it is almost certain there will be no change in the interest rates. Prominent governing council members have been vocalizing their preference for June as the appropriate meeting to start a managed rate cutting cycle.

Pressure is mounting on the ECB to cut elevated interest rates as economic growth remains anaemic and, unlike the US, inflation continues to decline towards target. The ECB’s staff projections had inflation only returning to target in the second half of 2025. Therefore, it may become increasingly difficult to avoid cuts given the bank’s price mandate.

Look out for more urgency in the statement. If 2022 is anything to go by, keep an eye out for any potential pre-commitment to June in the statement. Back in June of 2022, the ECB announced that is ‘intends to hike rates by 25 bps’ at the next meeting. However, considering markets have already priced in a cut in June, the actual market response may prove to be contained.

EUR/USD Steadies Around 200-Day Simple Moving Average

The euro attempted a recovery but bullish drivers are still lacking, apart from a pickup in sentiment/confidence indicators like the ZEW index. Therefore, further EUR/USD upside will likely depend on a more dovish outlook from the Fed, which appears unlikely after that hot NFP print but a notable CPI miss may do the trick on a short-term basis.

The pair rests around the 200 SMA after finding momentary, intra-day support at 1.0795. In the absence of a retest of the 1.0950 level, price action may struggle to maintain its recent bullish move.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

EUR/GBP Bulls Have Work to Do

EUR/GBP, viewed on a longer time frame, exhibits a dynamic level of resistance that has marshalled bulls for some time now. It is yet to be conquered and last week’s rise still leave more room to conquer before another test becomes a reality.

EUR/GBP Weekly Chart

Source: TradingView, prepared by Richard Snow

EUR/GBP on the daily chart has traded to the upper side of the range that has contained the majority of price action this year but has struggled to post a close above the consolidation zone.

Eventually, the pair will move on from the zone but the right catalyst is yet to present itself and the generally depressed FX volatility has failed to provide the necessary momentum to chart a new course. As long as this remains the case, EUR/GBP is likely to favour the familiar trading range beneath 0.8578.

EUR/GBP Daily Chart

Source: TradingView, prepared by Richard Snow

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Main Risk Events for the Week Ahead

Next week the European Central Bank will deliberate the ideal time to start cutting interest rates but before that, crucial US CPI data will demand the market’s attention. Core and headline CPI numbers will provide a better picture of price pressures in light of recent Fed comments offering up the prospect of the Fed having to hold off on rate cuts this year. In addition, robust PCE figures reinforced the challenge in bringing inflation to the 2% target – something that is likely to keep the dollar supported (weigh on EUR/USD).

FOMC minutes may offer some insights into the Fed’s thinking but recent data may already have shifted some opinions expressed at the Match meeting. On Friday, the Fed’s Barkin commented on the hot NFP report saying, “that’s quite a strong jobs report”. Fed Governor Michelle Bowman also warned that she wouldn’t be comfortable cutting rates until disinflation returns.

Then, in Europe, the final German inflation print for March is expected to see further progress. Disinflation in Europe is continuing, in contrast to the US, and may stress the need for June to bring about that first rate cut.

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX