Will the ECB Rate Decision be a turning point for EUR/USD?

• EUR/USD is trading around 1.14 ahead of Thursday's ECB rate decision.
• The central bank is expected to leave interest rates unchanged.
• Rising energy prices are again adding inflationary pressure.

At its June meeting, the ECB raised interest rates for the first time in three years. The central bank raised the deposit rate by 25 basis points to 2.25% to tackle inflation after oil prices surged following the start of the conflict in the Middle East.

However, since that meeting, rollercoaster energy prices and ongoing uncertainty surrounding the Middle East have complicated the inflation and growth outlook.

Energy prices and the inflation outlook

A brief U.S.-Iran ceasefire pulled oil prices back to pre-war levels. June inflation also came in cooler than expected, easing to 2.8% yoy from the 3.2% forecast. Core CPI slowed to 2.4% from 2.5%. Cooling inflation, combined with lower oil prices, saw markets scale back expectations for further ECB rate hikes.

However, the recent breakdown of the ceasefire, disruption to shipping through the Strait of Hormuz, and concerns over Saudi supply have pushed Brent back above $90 a barrel. Last week's 15% jump in oil prices is a reminder of how quickly the inflation outlook can change.

No hike expected, ECB Lagarde’s tone in focus

Even so, the base case still points to no change from the ECB this week, although some of the more hawkish policymakers may be tempted to point to higher energy prices as a reason to move sooner rather than later on rates.

That said, the ECB has rarely surprised markets. The lack of updated staff forecasts for inflation and growth at this meeting also argues against an immediate move.

While higher energy prices could delay the disinflation process, the ECB has a fine balancing act as tighter financial conditions continue to weigh on economic activity and growth.

With markets pricing around a 90% probability that rates remain unchanged, the focus will be firmly on Christine Lagarde's press conference.

Should Lagarde emphasise upside inflation risks while oil prices remain elevated and uncertainty surrounding the Middle East persists, this could cement September rate hike expectations. European bond yields could move higher, providing near-term support for the euro.

However, if Lagarde focuses instead on slowing growth and plays down the impact of recent energy price moves on inflation, expectations for another ECB rate hike could fade, weighing on the euro while supporting European equities.

The market is pricing in 41 basis points worth of hike this year, with the deposit rate expected to rise to 2.73% by February 2027.

EUR/USD Technical Analysis

EUR/USD has been trending lower since mid-April, forming a series of lower highs and lower lows before finding support at the 2026 low of 1.1325.

While the pair has recovered from that low, the rebound has struggled to break meaningfully above the 1.1400–1.1450 resistance zone. The price continues to trade below its falling trendline and beneath both the 50-day and 200-day EMAs, keeping the broader picture bearish.

Sellers will look to break below 1.1380, last week's low. A move below here brings 1.1325 into focus. A break beneath this level would create a fresh lower low, exposing 1.1200.

On the upside, a move back above the 1.1400–1.1450 resistance zone would expose the 50-day SMA around 1.1500. Above there, the 200-day EMA near 1.1570 comes into focus.