EUR/USD is trading higher ahead of the ECB interest rate decision that is scheduled for Thursday. The event will be the culmination of the monetary policy meeting that began today. On the one hand, the continent has recorded significant economic recovery. This is due to progress in its vaccination program and subsequent reopening of the embedded economies.

According to data released by Eurostat at the beginning of June, unemployment rate in the region was at 8.0% in April compared to the forecasted and prior month’s 8.1%. The figure was its lowest since July 2020.

On the other hand, Tuesday’s ZEW data showed that June’s economic sentiment was at 81.3 compared to the prior month’s 84.0. Besides, the GDP preliminary data for Q1’21 showed that the economy contracted by 0.3% on a QoQ basis.

Subsequently, ECB is likely to continue with its accommodative monetary policy until the recovery proves to be self-sustaining. Deutsche Bank’s chief economist, Mark Wall has stated, “…we lean towards the ECB maintaining the pace of purchases. The dovish tilt in ECB Governing Council commentary in the last couple of weeks – the doves have been dovish, the hawks have not been hawkish – implies that the Council is not in the mood to take risks.”

EUR/USD will also be reacting to the US inflation data. Analysts expect the core CPI to come in at 0.4% on a month-on-month basis. With the inclusion of food and energy components, economists expect consumer prices to rise by 4.7% compared to the last year. A better-than-expected figure will act as a bullish catalyst for the US dollar.  

EUR/USD technical outlook

EUR/USD is up by 0.17% at 1.2193. It surged to an intraday high of 1.2218 before pulling back. On a two-hour chart, it is above the five and ten-week exponential moving averages. I expect the currency pair to continue finding support along the 50-day EMA at around 1.2177. Below that level, the bears will be targeting 1.2150. On the flip side, it may rise to find resistance at 1.2200 before moving further up to its intraday high.

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