EUR/USD Risks Sell-the-Fact Pullback Ahead of ECB Decision

The European Central Bank's (ECB) inflation projections and guidance will be under scrutiny as it is set to hike its deposit facility rate by 25bp to 2.5% on Thursday, a move that has been priced in by markets.

While the decision itself may not be the main event unless the ECB surprises with a hold, traders will look for signs of whether policymakers treat the latest energy shock as temporary or a more persistent inflation trend.

The key issue is whether the ECB sees the current rise in inflation as largely an energy-driven shock or if it is becoming more concerned about second-round effects that could justify further tightening later this year.

Futures market exposure looks supportive for euro bulls overall, but price action and sentiment among futures traders hint at weakness over the near term.