Ella 
The ECB considers US economic outperformance as a reason to cut rates, widening the monetary policy divergence between the US and Europe.
A full slate of economic data, including Fed meeting, NFP, Eurozone Core CPI, and Eurozone Flash GDP, is on watch this week.
EUR/USD’s bounce off 1.0600 support may have stalled at 1.0740, prompting close monitoring of key levels moving forward.
As the debate over interest rates intensifies within the European Central Bank (ECB), the prospect of a less dovish policy stance by the Federal Reserve is becoming increasingly apparent. Last week’s remarks from ECB officials, notably Italy’s central bank governor Fabio Panetta, underscore the potential need for further rate cuts in Europe, contrasting with the Fed’s stance of maintaining or even raising rates due to persistent inflation in the US.
The divergence in monetary policy stems from robust economic growth in the US, despite a disappointing Q1 GDP estimate, while Europe grapples with diminishing inflationary pressures. This scenario makes a case for rate cuts in Europe more compelling. Panetta, speaking at an ECB event, emphasized the risks of disregarding the impact of US monetary policy, which could adversely affect inflation and economic output in the eurozone. Similar sentiments were echoed by other ECB officials, highlighting the notion that US economic outperformance itself justifies potential rate cuts in Europe, further widening the monetary policy gap between the two regions.
Against this backdrop, the ECB is signaling a high likelihood of a rate cut at its upcoming June meeting, contingent upon inflation trends aligning with forecasts.
Following last week’s combination of slower-than-expected GDP growth and higher-than-expected price pressures in the US, concerns about stagflation have surfaced. Consequently, attention will refocus on Europe in the coming week, with traders closely monitoring key economic data releases.
In summary, the EUR/USD forecast remains influenced by the ECB’s stance on interest rates and the evolving economic landscape. As market participants navigate through data releases and central bank meetings, volatility in the EUR/USD pair is expected, with key levels such as the bounce off 1.0600 support and the stall around 1.0740 warranting close observation.
