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Euro (EUR) Battles Record Low Euro-Zone Inflation Expectations

Euro (EUR) Battles Record Low Euro-Zone Inflation Expectations

Nick Cawley, Senior Strategist
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EURUSD Price, Chart and Analysis:

Q2 2019 EUR Forecast and USD Top Trading Opportunities

Keep up to date with all key economic data and event releases via the DailyFX Economic Calendar

The latest market indicator of Euro-Zone inflation expectations – the 5-yr/5-yr inflation-linked swap rate – today printed a new all-time low at 1.165%. The indicator measures inflation expectation over a five-year period starting five years from now. This will be a major headache for the ECB whose remit is to maintain inflation rates below, but close to, 2% over the medium-term.

This reading is closely monitored by the ECB and the recent fall in expectations will only increase pressure on the central bank to loosen monetary conditions further – rate cuts, more quantitative easing – to boost price pressures in the single-block. The ECB halted the QE 2 at the end of 2018, apart from coupon and repayment reinvestments, and the central bank is likely in the months ahead to admit that more QE is necessary. The Euro-Zone benchmark (10-yr German Bund) currently trades at -0.265%, while the 20-year Bund offers a paltry 12.5 basis points of yield, highlighting the view that interest rates are going to stay very low for a long time.

EURUSD Price Looking Shaky - Lower for Longer?

EURUSD remains around 1.5 cents away from making a fresh two-year low if it breaks the May 23 nadir at 1.1107. The pair’s upside is currently being halted by the 200-day moving average which has held firm over the last week with the level broken but not closed above. EURUSD downside is being tempered by a weak US dollar with markets fully expecting at least two 0.25% interest rate cuts this year, cutting the attractiveness of the US dollar.

EURUSD Price Outlook Cloudy – ECB’s Rehn Talks Rate Cuts and More QE

EURUSD Daily Price Chart (September 2018 – June 14, 2019)

Retail traders are 45.8% net-long EURUSD according to the latest IG Client Sentiment Data, a bullish contrarian indicator. However recent daily and weekly positional changes give us a mixed trading bias.

We run several Trader Sentiment Webinars every week explaining how to use IG client sentiment data and positioning when looking at a trade set-up. Access the DailyFX Webinar Calendar to get all the times and links for a wide range of webinars.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on EURUSD – bullish or bearish? You can let us know via the form at the end of this piece or you can contact the author at or via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.