EUR/USD Outlook: Posts 5-Week Top After ECB’s Rate Hike

• The euro traded near a five-week high hit on Thursday.

• The ECB increased rates by 25 basis points to 3.5%, the highest level in 22 years.

• The US Federal Reserve held interest rates unchanged but indicated future rate hikes.

Today’s EUR/USD outlook is bullish. The Euro traded near a five-week high hit on Thursday after the European Central Bank’s decision to raise interest rates for the eighth consecutive time. 

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As expected, the ECB increased rates by 25 basis points to 3.5%, the highest level in 22 years. Additionally, the ECB staff raised their inflation forecasts, particularly for this year and next, due to previous unexpected increases. Consequently, the projection for this year was revised from 4.6% to 5.1%.

Notably, the ECB has raised borrowing costs by a cumulative 4 percentage points in a year, its quickest rate on record. Nevertheless, the labour market is still tight, nominal pay growth is swift, and underlying pricing pressures, particularly for services, seem stubbornly high.

In contrast, the US Federal Reserve held interest rates unchanged but indicated future rate hikes. While the Fed’s decision interrupted a series of 10 consecutive rate hikes, the policymakers still anticipate two more increases by the end of 2023. 

Elsewhere, US retail sales in May showed an unexpected rise of 0.3% following a 0.4% increase in April, briefly mitigating the dollar’s losses.

Furthermore, the US Labor Department’s report revealed that initial claims for state unemployment benefits remained unchanged at a seasonally adjusted 262,000 for the week ending June 10. 

EUR/USD key events today

Investors expect the crucial inflation report from the ECB, which will come out later. This report will clearly show Eurozone inflation amid ECB rate hikes. It could therefore change the ECB’s policy outlook.

EUR/USD technical outlook: Bulls in the overbought region

On the charts, the EUR/USD has risen sharply to the 1.0950 resistance level after breaking above the 1.0850 resistance level. The price now trades far above the 30-SMA, a sign that bulls have a strong hold on the markets. 

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Additionally, the RSI is in the overbought region. An extreme level is usually hit in an uptrend. However, this extreme level might also see bulls take a break after the big move. Bears might return for a pullback before the price punctures 1.0950 to make a new high.

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