EUR/USD Forecast: Cautious ECB tone could limit Euro’s upside

EUR/USD climbed above 1.1100 in the European session on Thursday.
ECB is forecast to raise key rates by 25 bps after July meeting.
US Q2 GDP data could influence USD’s valuation later in the day.
EUR/USD gathered bullish momentum and climbed above 1.1100 during the European trading hours on Thursday. The near-term technical outlook highlights a bullish tilt but the European Central Bank’s (ECB) policy announcements and Gross Domestic Product (GDP) data from the US could drive the pair’s action in the second half of the day.

The US Federal Reserve (Fed) raised its policy rate by 25 basis points (bps) to the range of 5.25-5.5% as expected. During the press conference, Chairman Jerome Powell reiterate the data-dependent approach and refrained from confirming another rate hike this year. Powell also acknowledged that the policy was already restrictive.
Although the Fed has left the door open for additional tightening, markets seem to think that the Fed has reached the terminal rate unless there is a significant upside surprise to employment or inflation data.

The ECB is widely anticipated to raise key rate by 25 basis points (bps). Latest macroeconomic data releases from the Eurozone highlighted the slowdown in the economic activity.

In case ECB President Christine Lagarde adopts a cautious tone regarding future policy tightening and doesn’t commit to a September rate increase, EUR/USD could lose its bullish momentum. On the other hand, the Euro could continue to gather strength if Lagarde downplays recession fears and repeats the need for a tight policy to bring inflation further down.

The US Bureau of Economic Analysis will release the first estimate of the second-quarter Gross Domestic Product (GDP) growth on Thursday. Markets expect an annualized GDP growth of 1.8% in Q2 following the 2% expansion recorded in the first quarter. A bigger-than-forecast GDP growth could provide a boost to USD and weigh on the pair.