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Summary

• The European Central Bank (ECB), in a widely expected decision, lowered its Deposit Rate by 25 bps to 2.00% at today's announcement, while its accompanying statement contained both dovish elements and some more constructive elements.
• The ECB noted that current conditions were exceptionally uncertain, while also observing a deceleration in underlying inflation pressures and wage growth. While the ECB offered limited policy guidance for the meetings ahead, ECB President Lagarde did say the central bank was “getting to the end of a monetary policy cycle.”
• The ECB also provided updated economic projections. The central bank's GDP growth forecasts were little changed. Regarding prices, the forecasts for headline inflation were lowered on the back of reduced oil prices and a stronger euro. There was little change to the ECB's underlying (CPI ex food and energy) forecasts, although a projection of 1.9% for both 2026 and 2027 suggests, in our view, the ECB maintains a modest easing bias.
• We think today's monetary policy announcement supports further monetary easing, though it does not alter our view on the likely pace of ECB rate cuts. We expect a pause from the ECB at its July meeting and a 25 bps rate cut by the ECB in September, which would take the Deposit Rate to 1.75%. While we think the risks are likely tilted toward a more pronounced easing cycle, we do not yet see compelling enough evidence for the ECB to hasten or add to its rate cut cycle.

European Central Bank Cuts Rates, Leaves Door Open For Further Easing

The European Central Bank (ECB) cut its Deposit Rate by 25 bps to 2.00% at today's monetary policy announcement in a widely expected decision, bringing the cumulative easing during the current cycle to 200 bps. The accompanying announcement was careful to provide only limited guidance on the path for future monetary policy, though, in our view, the ECB's comments and updated economic projections keep the door open for further monetary easing. Among the key elements of today's announcement, the ECB said:

• Current conditions were that of “exceptional uncertainty.”
• Most measures of underlying inflation suggest inflation will settle around 2% on a sustained basis.
• Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its impact on inflation.

While acknowledging near-term headwinds to growth, on a somewhat more constructive note, the ECB also said “rising government investment in defense and infrastructure will increasingly support growth over the medium term. Higher real incomes and a robust labor market will allow households to spend more. Together with more favorable financing conditions, this should make the economy more resilient to global shocks.”

As has typically been the case recently, the ECB offered limited future guidance. The central bank said “it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance” and that it is “not pre-committing to a particular rate path.” Importantly however, in the post-meeting press conference, ECB President Lagarde said the central bank was “getting to the end of a monetary policy cycle.”

Regarding the ECB's updated economic projections, the central bank's GDP growth forecasts were little changed at 0.9% for 2025, 1.1% for 2026 and 1.3% for 2027. We, along with the ECB, assess the risks around these growth forecasts as likely tilted to the downside. The forecasts for headline inflation were reduced, reflecting lower oil prices and in part a stronger euro, at 2.0% for 2025, 1.6% for 2026 and 2.0% for 2027. However, forecasts for underlying inflation trends (the CPI excluding food and energy) were actually revised higher to 2.4% for 2025, slightly lower to 1.9% for 2026 and unchanged at 1.9% for 2027. The fact that the underlying inflation forecasts for 2026 and 2027 are slightly below the ECB's 2% inflation suggests, in our view, that the ECB maintains a modest easing bias.

Finally, the ECB outlined some scenario analysis related to differing potential paths for the evolution of global trade tensions. Under these scenarios, “a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections. By contrast, if trade tensions were resolved with a benign outcome, growth and, to a lesser extent, inflation would be higher than in the baseline projections.”

Overall we view the ECB's ongoing, albeit modest, easing bias as well-founded. Both headline and core inflation slowed in May, to 1.9% year-over-year and 2.3% year-over-year respectively. The ECB's Indicator of Negotiated Wages slowed to 2.4% year-over-year in Q1, and other wage growth measures are also moderating. Meanwhile, sentiment surveys remain downbeat, suggesting that growth is likely to underwhelm in the immediate months ahead. That said, while we think today's monetary policy announcement supports the view of further monetary easing, it does not alter our view on the likely pace of ECB rate cuts, especially considering Lagarde's comments regarding where we are in the easing cycle. We expect a pause from the ECB at its July meeting, and a 25 bps rate cut by the ECB in September, which would take the Deposit Rate to 1.75%. To be sure, the risks still appear somewhat tilted toward faster or more pronounced ECB rate cuts, with CPI inflation, GDP growth, sentiment surveys, and the evolution of trade tensions all having the potential to disappoint to the downside in the coming months. That said, we also remain “data-dependent” and do not yet see compelling enough evidence to suggest a more extended ECB easing cycle, given the ECB's policy rate is already in a neutral zone. Against that backdrop, at this time our base case remains for the ECB to deliver its final rate cut of the current easing cycle in September.

Markets

The ECB delivered as expected its eighth 25 bps rate cut to 2%. One member (most likely Holzmann) voted to skip. ECB chair Lagarde avoided a question whether this was now a neutral rate but said the current level means it is well positioned to navigate through the uncertain conditions. It clearly mimics recent Fed wording used by policy makers when they are supporting the long rates status quo. Lagarde in any case noted the ECB is getting towards the end. It penciled in a lower inflation forecasts for this year to 2% (from 2.3%) and 1.6% (from 1.9%) in 2026 owing to lower energy prices and a stronger euro. 2027 remained unchanged at 2%. Core CPI forecasts were broadly the same at 2.4%-1.9%-1.9%. GDP is seen at 0.9%-1.1%-1.3% over the policy horizon, barely deviating from March. A strong start in 2025 but a trade uncertainty-related weaker remainder of the year resulted in the unchanged forecast. Rising government spending in defense and infrastructure will increasingly support growth over the medium term, flanked by higher real incomes and a robust labour market underpinning household consumption. On these growth forecasts, Lagarde said she wouldn’t exclude further upward revisions. ECB staff produced alternative scenarios where an escalation of trade tensions ends up in below-baseline growth and inflation forecasts. A benign outcome leads to higher growth and to a lesser extent CPI. Such scenario analysis is testament to the high uncertainty context, which is also why the ECB refrains from giving any forward guidance. Growth risks are tilted to the downside, with Lagarde referring to the trade and geopolitical theme. Some note this is a less alarming analysis than in April, when Lagarde spoke about “increasing” downside risks. On inflation the (risks surrounding the) outlook is more uncertain than usual with a series of factors often delivering a conflicting impact.

European yields initially dipped when digesting especially the new inflation forecasts but quickly rebounded after a relatively upbeat growth assessment and the hint to a pause. The curve bear flattens with net daily changes varying between +1.2 and +5.4 bps. Money markets pared easing bets though still expect at least one more this year. The euro strengthens to EUR/USD 1.1485 and is nearing the April high. The marginal USD appreciation after reports of president Trump and his Chinese counterpart Xi having held a phone call quickly evaporated. It is nevertheless their first contact, initiated by Trump, and potentially an important step towards easing trade tensions. The news also helped US yields overcome their intraday weakness (jobless claims related) to trade virtually flat on the day.

News & Views

The Bank of England published its monthly Decision Maker Panel (DMP) survey of CHO’s from SME’s. Firms reported that their realised own-price growth remained unchanged at an average annual rate of 3.5% in the three months to May. Year-ahead own-price inflation was expected to be 3.7% in the three months to May (from 3.9%). Expectations for year-ahead CPI inflation remained unchanged at 3.2% and at 2.8% for the 3-yr ahead gauge. Firms reported annual wage growth was 4.7%. Expected year-ahead wage growth fell from 3.8% to 3.7%. Across all questions on the potential impact of recent changes to US trade policy on sales, prices and investment over 70% of firms reported that these would have no material impact on their firms. 56% of firms nevertheless reported that the overall level of uncertainty facing their business was high or very high.

In a press conference today, Governor Glapinski of the National Bank of Poland (NBP) commented yesterday’s NBP policy decision. The NBP left its policy rate unchanged at 5.25% with few clues going forward. Growth in Q1 at 3.2% was supported both by consumption and investment. The NBP also mentioned an ongoing low unemployment rate and a high level of employment, with mixed signals on wage growth. CPI inflation in April declined to 4.1%, but this was mainly due to a lower fuel prices. NBP expects inflation ex food and energy prices to decline slightly in May, but services inflation is expected to remain elevated. At the press conference today, governor Glapinski said economic growth and in particular fiscal policy as being pro-inflationary. New gas tariffs might decelerate inflation in coming months, but at the same time, the NBP governor still sees risk of higher inflation longer term. The comments suggest that there is still division inside the MPC on the timing for further rate cut after May’s 50 bps one. The zloty gained modest ground during the press conference (EUR/PLN 4.28).

The Euro is rallying despite the 25bps cut from the European Central Bank from this morning. The ECB Deposit Rate is now at 2% from 2.25%.

The fact that the markets had the cut priced in (well-expected) led to prices were broadly unchanged - markets seesawed but came right back to their level from the beginning of the session.

As I am writing this, markets are rallying on the "We are well positioned" comments from Christine Lagarde, speaking right now.

Christine Lagarde is speaking on the ongoing press conference mentioned that Inflation (core inflation) is targeted to be on target towards 2027, therefore there is still need for some change.
She also mentioned how a strong Euro will hurt exports as things have already been slowing down going into the meeting.

These two lines are contradicting - my base case is a pause for next meeting in the waiting for September ECB Projections.

2% is also the longer-run targeted interest rate for the ECB but they still mention that they are in a good position and will take things meeting-by-meeting.

Lagarde also expressed. like every speaker of every central bank, how one of the biggest upcoming challenge is the uncertainty of Global Tariffs - one of the reasons why any trade deal news is welcomed by markets.

By the way, we are waiting for more news on these headlines but Trump and Xi Jinping are currently discussing.

Let’s break down the charts from the Daily to the Hourly timeframe to identify the key levels worth monitoring.

EUR/USD Technical Analysis

EUR/USD Daily

EUR/USD Daily Chart, June 5, 2025 - Source: TradingView

The Euro is maintaining its upwards direction from the mid-May bounce. The Daily Exponential MA 20 and EMA 50 are both acting as support.

Momentum is strong and the RSI is not overbought on the daily yet, giving space for movement.

Expect volatility on the currency though as the day is not over!

The current Daily Candle is strong and overlapping the June 3 Daily bear candle.

Let's dive further.

EUR/USD 4H Chart

EUR/USD 4H Chart, June 5, 2025 - Source: TradingView

Prices have yesterday bounced on the Immediate Pivot at 1.1335 enjoying from a weak USD overall, but today confirms the bullish momentum especially with the current strong candle.

Markets are really appreciating the "well-positioned" comments and we are currently heading to the 1.15 key level and we are breaking through the downward trendline formed from the June 3 highs.

Next up is the EUR/USD yearly highs at 1.15730, though keep in mind that there are a few levels to break before - especially with a 4H overbought RSI (which doesn't mean reversal but stretched momentum - which may keep going).

Let's look at potential hurdles before the yearly highs on the 1H chart.

EUR/USD 1H Chart

EUR/USD 1H Chart, June 5 2025 - Source: TradingView

The ECB conference is coming to its end on a very strong 1H Candle - we are approaching the 1.15 Key level fast.

The Prices have used the MA 50 as support on the 1H and the RSI is currently well-into overbought - This momentum is very tough to fade.

There are only a few hurdle going towards the April 2025 highs:

• Last support before end-April downtrend 1.1520
• Main Resistance Zone 1.1550 to 1.1573

The Euro is currently up over 0.60% on the day.

Safe Trades!

Gold cracked $3400 barrier in fresh acceleration that pushed the price to the highest in almost one month, dragged by today’s strong rise in silver price

Probe through significant barriers at $3400 zone (former recovery top / psychological / Fibo 76.4% of $3500/$3120 correction) is about to generate fresh bullish signal, which requires close above these barriers to be confirmed.

Technical picture remains bullish on daily chart, although overbought conditions are likely to provide more headwinds to fresh bulls.

Dips from new high ($3403) were so far shallow, with supports at $3384/80 zone (yesterday’s high / hourly lower platform / rising 10HMA) to hold dips and keep immediate bulls intact.

Sustained break of $3400 zone to signal continuation of recovery leg from $3120 towards $3437 (May 7 lower top) and key $3500 barrier in extension.

Pivotal supports lay at $3361/55 (Wednesday’s low / broken Fibo 61.8%) loss of which would weaken near-term structure and signal a false break higher.

Res: 3403; 3410; 3437; 3450.
Sup: 3380; 3365; 3355; 3343.

Canada's trade deficit widened from a revised $2.3 billion in March to $7.1 billion in April. This is the widest monthly trade deficit on record.

Merchandise exports cratered (-10.8% m/m) continuing their slide from February and March's much smaller declines. The drop in exports was broad-based, falling in 10 of 11 industries. Exports of passenger cars and light trucks (-22.9% m/m) heavily weighed on headline readings as buyers stockpiled in the months preceding auto tariffs. Sizeable decreases were also seen in exports of consumer goods (-15.4% m/m), energy products (-7.9% m/m), and industrial machinery and equipment (-22.5% m/m).

Merchandise imports were down by a more moderate 3.5% m/m in April. Once again, imports of motor vehicles and parts (-17.7% m/m) contributed most to the decline amid the implementation of tariffs. Industrial machinery, equipment, and parts (-9.5% m/m), consumer goods (-4.2% m/m) and electronics (-5.5% m/m) weighed on the total import reading.

In volume terms, merchandise exports were down by a hefty 9.1% m/m while imports moved lower by 2.9% m/m.

Canada's merchandise trade surplus with the United States shrunk to its smallest point since end-2020, currently at $3.6 billion as of April.

Key Implications

It was an abysmal month for Canadian trade but one that comes as no surprise. April marked the first month that Canada faced the full suite of American tariffs, most notably auto tariffs, which are imposing a massive headwind on auto trade. It is encouraging to see exports to non-U.S. markets ramp up over the past two months, but it hasn't been enough to offset the sizeable retraction in shipments south of the border.

A pull-forward in trade helped fuel healthy export gains in the first quarter, making a notable contribution to total Canadian GDP growth. While we only have one trade data point on the quarter, this story is due for a significant course-correction, with net trade pointing to a significant drag on second quarter growth. Risks to the near-term trade picture are also tilted to the downside. Canada recently paused many U.S. counter tariffs, which may buffer the impact on near-term imports, while exports are expected to dampen amid ongoing trade tensions.

Daily Pivots: (S1) 142.10; (P) 143.25; (R1) 143.88; More...

Range trading continues in USD/JPY and intraday bias remains neutral. On the upside, above 146.27 will target 148.64 resistance first. Firm break there will resume the rebound from 139.87. Nevertheless, break of 142.10 will bring deeper fall back to 139.87 low.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8153; (P) 0.8202; (R1) 0.8233; More….

Intraday bias in USD/CHF remains neutral as it's staying in established range. Fall from 0.8475 could extend lower, and break of 0.8156 will target 0.8038 low. But strong support should be seen from there to bring rebound, at least on first attempt. On the upside, break of 0.8346 resistance will extend the corrective pattern from 0.8038 with another rising leg.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8732) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 1.3511; (P) 1.3545; (R1) 1.3590; More...

GBP/USD's rally resumed by breaking through 1.3592 resistance today. Intraday bias is back on the upside. Next target is 100% projection of 1.2706 to 1.3442 from 1.3138 at 1.3874. For now, near term outlook will stay bullish as long as 1.3414 support holds, in case of retreat.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2866) holds, even in case of deep pullback.

Daily Pivots: (S1) 1.1371; (P) 1.1403; (R1) 1.1449; More...

EUR/USD's rebound from 1.1064 resumed by breaking through 1.1453 today. Intraday bias is back on the upside for 1.1572 high. Strong resistance could be seen there to limit upside, at least on first attempt. On the downside, On the downside, break of 1.1356 support will indicate that the corrective pattern from 1.1572 has started the third leg, and target 1.1209 support. Nevertheless, decisive break of 1.1572 will confirm larger up trend resumption.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0856) holds.