EUR/USD: Euro bulls could muster their best efforts should the US PCE underwhelm – SocGen

EUR/USD has struggled to break convincingly above the 200-Day Moving Average (DMA) at 1.0827. Economists at Société Générale analyze the pair’s outlook. 

Inflation to decline to below 2% in August

We forecast a drop in the Euro flash CPI on Friday to 2.5%, 0.5pp above the ECB target. Our house view is for a decline to below 2% in August. 

We forecast core to have slowed to 3% in January but would not rule out a decline below that, which would stoke optimism of a rate cut this summer.

The ECB minutes last week already signalled that the inflation forecast would be revised down, not something that has instilled particular confidence in Bunds or sparked enthusiasm for receiving swaps.

The inflection point in wage growth last quarter, tight financing conditions and flat M3 money supply growth bring the prospect of a less hawkish statement by the ECB next week, but this is not something that investors are actively entertaining at the moment.

EUR/USD staged a feeble breakout attempt from the 200-DMA last week but fell at the first hurdle near 1.0900. Euro bulls could muster their best efforts should the US PCE underwhelm.