EUR/USD: heading towards one or two rate hikes in the EU?

Caught between the prospect of ECB interest rate hikes and a loss of risk appetite, the Euro/Dollar currency pair continued its nervous oscillations around 1.1650. Currency traders have just learned of the very first inflation estimates, which slightly exceeded expectations in the Eurozone for May, at +2.5% year-on-year, excluding volatile items (food, energy, alcohol, and tobacco).

"Three months after the start of the war in Iran and the closure of the Strait of Hormuz, the effects of stagflation are increasingly evident in the eurozone data," comments Martin Wolburg, Senior Economist at Generali Investments, who in 2026, [is forecasting] average inflation of 3% and GDP growth of 0.7%. For the ECB, a precautionary 25 basis point increase should suffice, provided that wage growth remains moderate. But the ECB's April accounts show that keeping rates at a constant level has already been a difficult decision, as tolerance for the energy shock has diminished, suggesting that if the stagflation scenario persists, further rate hikes are likely.

This rise in inflation, linked to the direct and indirect consequences of chronically high oil prices, is constraining the ECB's plans at a time when growth is particularly sluggish.

Nomura economists therefore believe "that the ECB will raise its rates by 25 basis points at its next meeting in June, and again at the July meeting in response to the war in Iran, after having reviewed [their] position following the April meeting. In our view, these rate hikes should be interpreted as a strong signal (i.e., that the ECB will not allow inflation expectations to become unanchored and will not permit inflation to deviate significantly from its target in the medium term)."

Currency traders are thus keeping a close eye on developments in the Middle East conflict, where glimmers of hope for peace are so far systematically dashed. Asian trading, in particular, was tense overnight following press reports published by the Iranian news agency Tashim, according to which Tehran had suspended negotiations with Washington, notably because of the Israeli offensive in Lebanon.

Later that night, Donald Trump attempted to reassure markets. "The US president stated that Israel and Hezbollah had agreed to a ceasefire following his telephone conversations with their respective leaders," notes Deutsche Bank. "Trump also contradicted reports from Iran, stating that negotiations were proceeding 'at a steady pace' and telling ABC News last night that he believed a memorandum of understanding would be finalised 'within the next week,'" the German bank continues.

Right now, the EUR/USD is trading at $1.1623.

KEY TECHNICAL ELEMENTS
From a technical perspective, the euro/dollar pair is now facing a pivotal zone. Having erased much of its decline related to the acute phase of the conflict, it is now trading near the upper limit of its range. This setup reflects a compression of volatility and marked hesitation among market participants, who are currently unable to trigger a sustained upward move. In the absence of a clear catalyst - whether macroeconomic, monetary, or geopolitical - the pair remains contained below this major resistance level ($1.1825), in a wait-and-see phase that could lead to a more directional move once this equilibrium is broken.

The hanging man candlestick pattern of May 11th sent a negative technical signal, which resulted in a downward acceleration in the form of a break below the 200-day moving average (in brown).

A temporary rebalancing of market forces is underway, before a bearish resumption.

MOYEN TERME FORECAST
Regarding the factual graphs mentioned above, our opinion is neutral at the moment regarding the EUR/USD.

We keep this neutral opinion so much that the EUR/USD rates are positioned between support at $1.1608 and resistance at $1.1765.