Eurozone flash HICP cools faster-than-expected to 2.8% in June: What it means for EUR/USD?
The Eurozone's flash HICP inflation figure cooled to 2.8% in June, significantly below expectations and intensifying the prospect of ECB rate cuts in the latter half of the year. This disinflationary trend, if sustained, could pressure the euro further against the dollar, pushing EUR/USD toward its critical parity support. With market sentiment leaning bearishly on the euro, traders are reassessing their positions as the likelihood of a divergent monetary policy path deepens.
Where it sits in our coverage
Our consensus EUR/USD target currently stands at 1.1700 (median across 11 firms), with firms like HSBC and Citi aligning closely at the lower end, while UBS holds a more optimistic 1.2000. Thus, the current market positioning reflects a cautious approach towards the euro, given the recent data.
How firms align
JPMorgan's forecast of 1.1800 for March 26 suggests some alignment with the bearish sentiment driven by the inflation figures, supporting the idea that the euro may face further headwinds. Conversely, Scotiabank's revised lower target of 1.1200 for December reflects significant skepticism about the euro's near-term recovery, as detailed in our internal coverage (/reports/scotiabank).
What the data shows
Recent forecast revisions indicate evolving sentiment towards the euro, with Scotiabank adjusting its December target from 1.2200, implicitly supporting the notion that risk of further depreciation is prevalent. For more insights, see our research on EUR/USD's divergence path at /research/eurusd-ecb-rate-path.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Eurozone flash HICP at 2.8% increases ECB rate-cut expectations.
- 02Traders should closely monitor EUR/USD near parity levels.
- 03Potential for further euro weakness if inflation continues to decline.
- 04Market sentiment remains bearish on the euro, expecting lower levels.
Market implications
Market participants should focus on the 1.1700 level as a near-term support for EUR/USD, with key ECB meetings on the horizon likely influencing future volatility. Consensus around a softer euro could see movement towards parity if disinflation persists.
Risks to this view
A surprise increase in the Eurozone inflation figures or a hawkish pivot from the ECB could invalidate this bearish outlook, prompting a potential reversal in EUR/USD's trajectory. Additionally, a stronger-than-expected US labor market report might bolster the dollar further.
Sentiment by currency
USD+EUR-JPY~GBP~Composite USD score: +0.65
Sources & References
How we cover this story
Other coverage on this pair
Euro: Sideways bias within defined band against US Dollar – UOB
EUR/USD Price Forecast: Weakens to near 1.1400 as ECB hike bets recede, bearish vibe prevails
ECB rate hike expectations fading pressures EUR/USD toward 1.1400; watch for further dovish pivot risk.
Euro trims losses against the US Dollar, but Fed rate-hike bets keep gains in check.
Persistent Fed rate-hike expectations limit EUR/USD upside despite intraday euro recovery, suggesting USD support remains intact on policy divergence.
Euro: Resistance at 1.1450 caps upside against US Dollar – Scotiabank
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