EUR/USD hovers above 1.1300 as focus shifts to Thursday’s ECB meeting

• EUR/USD continues to remain well supported above 1.1300 after hot Eurozone inflation, having shrugged off weak US ADP data.
• Focus now turns to Thursday’s ECB meeting and whether the bank will adjust its inflation view.

EUR/USD continues to trade well supported to the north of the 1.1300 level as the euro remains well positioned near the top of the daily G10 performance table, having been boosted by post-hot Eurozone inflation data hawkish ECB bets. While the pair had already broken above the key 1.1275 resistance area during Asia Pacific trade amid continued US dollar weakness, it was sent lurching above the big figure after Eurozone HICP inflation unexpectedly hit fresh record highs in January.

Weak US ADP National Employment data, which showed a surprise more than 300K drop in employment last month, was broadly shrugged off by FX markets. That’s because market participants don’t trust ADP to accurately predict the official NFP number and Fed members have recently been emphasising the importance of wage growth data. Thus, EUR/USD has spent the last few hours going sideways in the 1.1310 area, where it currently trades with gains of about 0.4% on the day. Subdued trade is likely to persist ahead of Thursday’s ECB policy decision.

In wake of the latest Eurozone inflation surprise, some analysts are calling for the ECB to adjust its inflation view. At its last meeting, the central bank said that it still viewed inflation as transitory and likely to fall back under the 2.0% target by the end of 2022, but that this view could shift on persistent inflation surprises. The ECB won’t be posting new forecasts but could hint towards an upgrade at the coming meeting that might validate current market pricing for a hiking cycle to begin in the final quarter of 2022. A hawkish surprise at Thursday’s meeting would likely lift EUR/USD further towards the upper 1.1300s.