EUR/USD Tests 1.12 - ECB Rate Decision Preview

EUR/USD is trading at 1.1195, testing the psychologically important 1.12 level ahead of next week's European Central Bank meeting. The pair has rallied 4.2% in June alone, driven by Dollar weakness rather than Euro-specific strength. The ECB meeting on June 25 could be the catalyst for the next significant move.

ECB Expectations

The base case is that the ECB holds rates at 2.75% after delivering two 25 bps cuts earlier in 2026. Inflation in the Eurozone has re-accelerated slightly, printing at 2.4% in May versus the 2.0% target. This has pushed back expectations for additional cuts and given the Euro support against currencies where rate cuts are more imminent, particularly the Dollar.

Key Scenarios for EUR/USD

• ECB hawkish hold (most likely): Hold rates, flag risk of premature cuts - EUR/USD pushes to 1.1280-1.1350
• ECB dovish hold: Hold but signal willingness to cut in September - EUR/USD pulls back to 1.1050-1.1100
• Surprise cut (unlikely): EUR/USD could fall sharply to 1.0950

Trading Plan

With a high-impact event looming, the disciplined approach is to reduce position size before the announcement and wait for the initial volatility to settle. If the hawkish scenario plays out and EUR/USD confirms above 1.1220 in the hours after the decision, that is the entry point for longs targeting 1.1350. Stop below 1.1150.