Dumb Little Man

ECB Rate Cuts Loom Despite German Inflation Rise

May’s preliminary inflation data from Germany shows a mixed picture, with annual inflation ticking up to 2.4% from 2.2%, aligning with market forecasts. However, monthly inflation only rose by 0.1%, below the expected 0.2% and down from 0.5% last month. Final results are slated for release on June 12.

Source: dailyfx.com

Despite the inflation uptick, the ECB is poised to start reducing interest rates next week, with financial markets forecasting a more than 90% chance of a 25 basis point cut. Additional cuts are expected at the October 17 meeting, and a third reduction in December is becoming increasingly probable. These moves are anticipated to precede any loosening of the Fed’s monetary policy.

Source: dailyfx.com

The Euro has shown resilience against the backdrop of rising German inflation, maintaining a steady position within a 32-pip range against the USD. Major data releases, like the US Core PCE on Friday, are currently restraining FX market activity and volatility. The EUR/USD pair consistently traded at 1.0857 across recent sessions.

EUR/USD Daily Price Chart

Source: dailyfx.com

IG retail trader data reveals that 41.46% of traders are net-long on EUR/USD, with a short-to-long ratio of 1.41 to 1. Net-long positions have increased by 4.35% from yesterday, though they’ve declined by 6.59% from last week. Conversely, net-short positions have decreased by 10.27% from yesterday and 2.78% from last week.

Despite a prevailing net-short sentiment, contrarian strategies might suggest a potential rise for EUR/USD. The mixed retail sentiment data indicates a complex trading bias for the currency pair. While trader sentiment is informative, incorporating both technical and fundamental analyses remains crucial for informed trading decisions.

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