Rising ECB Rate-Hike Expectations Struggle to Offset a Strong U.S. Dollar

Forex

Summary:

Although the U.S. dollar has recently been supported by safe-haven demand and strong U.S. economic data, growing expectations of a European Central Bank rate hike could help narrow the monetary policy gap between Europe and the United States, thereby limiting the euro's downside.

SELL EURUSD

EXP

EXPIRED

1.16575

Entry Price

1.15850

1.16926

1.14278 +0.00088 +0.08%

Pips

EXPIRED

1.15850

1.14716

Exit Price

1.16575

Entry Price

1.16926

Fundamentals

As the Middle East conflict enters its fourth month, surging oil and gas prices have once again plunged the European Union and the euro area into an energy shock, marking their second energy crisis in four years. While the likelihood of runaway inflation remains limited, the euro area is still facing significant economic pressure.

Eurozone inflation data released on Tuesday showed that annual inflation rose to 3.2% in May, up from 3.0% in April and reaching its highest level since September 2023. Energy inflation climbed to 10.9%, while services inflation accelerated from 3.0% to 3.5%. The higher energy costs resulting from tensions involving Iran are increasingly being passed through the supply chain to end consumers.

Meanwhile, the European Central Bank appears unwilling to repeat its previous mistake of underestimating inflation. Policymakers have adopted a more hawkish stance, and some officials, such as Pierre Wunsch, have indicated support for a 25-basis-point rate hike in June. As a result, market expectations for a June ECB rate increase have strengthened further. Most institutions now expect the ECB to raise rates by 25 basis points at its June 11 meeting in response to persistent price pressures.

Although the U.S. dollar has recently benefited from safe-haven flows and resilient U.S. economic data, expectations of ECB tightening could help narrow the monetary policy divergence between Europe and the United States, thereby limiting downside pressure on the euro. In other words, EUR/USD may continue to trade with a downward bias while remaining largely range-bound in the near term.

Technical Analysis

From a timeline perspective, EUR/USD's price action can be divided into three phases:

Phase One: From June 2025 to the present, EUR/USD has fluctuated within a broad range of 1.1856–1.1418.

Phase Two: Since mid-April, EUR/USD has been trading within a descending channel.

Phase Three: Since mid-May, EUR/USD has moved in a narrower range between 1.1661 and 1.1586.

Taken together, the overall picture is relatively clear:

Long-term trend : Range-bound

Medium-term trend : Range-bound with a bearish bias

Short-term trend : Narrow consolidation

Regarding technical indicators, on the 4-hour chart, the base line and conversion line of the Ichimoku Cloud are currently moving sideways, suggesting that EUR/USD has entered a period of temporary stability. However, the current candlestick remains below the conversion line and is showing signs of breaking above it, indicating a potential short-term rebound.

The ADX indicator also points to a possible near-term rise. The +DI and -DI lines are diverging, with +DI remaining below -DI and falling toward the 11.1 area, which is close to a rebound zone. This likewise suggests that EUR/USD could experience a short-term upward correction.

Given that the U.S. Dollar Index continues to be supported by safe-haven demand and rising inflation expectations, traders may consider waiting for a short-term EUR/USD rebound before looking for opportunities to establish short positions at higher levels. Rising ECB Rate-Hike Expectations Struggle to Offset a Strong U.S. Dollar_1

Rising ECB Rate-Hike Expectations Struggle to Offset a Strong U.S. Dollar_1

Rising ECB Rate-Hike Expectations Struggle to Offset a Strong U.S. Dollar_2

Trading Recommendation

Direction: Short

Entry Price: 1.16575

Target Price: 1.15850

Stop Loss: 1.16926

Support Levels : 1.157231.151061.14567

Resistance Levels : 1.166181.171861.17500

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