EUR/USD retreats from recent highs as market attention turns to Eurozone inflation data

EUR/USD retreats modestly after a strong rally the previous day, trading around 1.1420 as investors await the preliminary Eurozone Consumer Prices Index (CPI) release later Tuesday.

Inflation is expected to ease, with headline CPI forecasted to slow to 2.0% year-over-year from April’s 2.2%, and core CPI likely to dip to 2.5% from 2.7%. These softer inflation readings may encourage the European Central Bank (ECB), which is widely anticipated to deliver its eighth consecutive rate cut on Thursday.

While this could allow the ECB to pause in July, President Christine Lagarde maintains a cautious stance, emphasizing that future policy moves will be data-dependent. Meanwhile, the US Dollar struggles to gain traction amid uncertainty caused by President Trump’s unpredictable trade policies and mounting fiscal concerns, with recent US economic data failing to bolster the Greenback.

Daily Market Digest: US Dollar Weakness Limits Euro’s Downside Pressure

• The Euro continues to hold its overall positive momentum as the US Dollar remains near multi-week lows. The US Dollar Index (DXY) slipped below the key 100.00 level last week, hitting fresh six-week lows at 98.60 on Monday.
• US manufacturing data underwhelmed in May, with the ISM report showing a decline in manufacturing activity and longer delivery times, underscoring the negative effects of ongoing trade uncertainties and sparking concerns about supply chain disruptions. The US ISM Manufacturing PMI fell to a six-month low of 48.5 from 48.7 in April, missing expectations for a rise to 49.5. While new orders and employment subindexes ticked slightly higher, prices paid by manufacturers dropped. Following the report, the US Dollar extended its losses.
• In Europe, May’s Manufacturing PMI came in as expected at 49.4, marking the fifth straight month of improvement but still signaling a slight contraction in the sector. Germany’s PMI was revised downward to 48.3 from an initial estimate of 48.8, highlighting continued softness in the region’s largest economy, though the impact on the Euro was minimal.
• Attention now turns to the Eurozone CPI release at 09:00 GMT, which is forecasted to show easing inflation pressures and will set the tone ahead of the European Central Bank’s (ECB) policy decision on Thursday.
• On the US economic calendar, Factory Orders for April will be closely watched following the soft manufacturing data. Orders are expected to have fallen 3% month-over-month, after a 3.4% gain in March, increasing downside risks for the US Dollar. Later in the week, the JOLTS Job Openings report and the key Nonfarm Payrolls data on Friday will also influence USD sentiment. Job openings are forecasted to hold steady at 7.1 million in April.

Technical Outlook: EUR/USD Bulls Face Resistance Near 1.1450

EUR/USD surged to a six-week high of 1.1450 on Monday but failed to break above the resistance zone between 1.1415 and 1.1435, which has been capping gains since mid-April. Despite this, the pair’s positive trend remains intact, supported by broad US Dollar weakness that limits downside pressure. The immediate resistance lies at the 1.1450 reverse trendline, blocking the path toward the April 22 high at 1.1545.

Should the pair fail to sustain above 1.1450, support levels to watch include the May 30 low near 1.1310, followed by a stronger floor around 1.1220.

The pair is consolidating below resistance, with potential for either a breakout toward 1.1545 or a pullback toward recent support zones.

EUR/USD 4-Hour Chart