Home EUR/USD Outlook: ECB Hawks Stress Need for More Rate Hikes

EUR/USD Outlook: ECB Hawks Stress Need for More Rate Hikes

  • ECB  policymakers expressed concerns about the persistent inflation in the Eurozone.
  • The ECB has raised rates by four percentage points, indicating another increase in July.
  • Isabel Schnabel stressed the risk of continued price growth.

Today’s EUR/USD outlook is bullish. On Wednesday, two German policymakers of the European Central Bank expressed concerns about the persistent inflation in the Eurozone. Consequently, they suggested that an extended period of elevated interest rates might be necessary to control it. They attributed this situation partly to the remarkably tight labor market in the region.

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Notably, the ECB has raised rates by four percentage points over the past year, indicating another increase in July. Furthermore, the bank anticipates it could take until 2025 to bring price growth back to the desired level of 2%. 

Joachim Nagel, the chief of Germany’s Bundesbank, compared inflation to a voracious creature and emphasized the need for resolute action against it. Additionally, he stated that inflation fighters must exhibit strong determination due to inflation’s stubborn nature.

Moreover, Nagel argued that while headline inflation may decline rapidly in the upcoming months, the ECB’s task is incomplete. This is because underlying pressures could remain concealed. 

His French counterpart, Francois Villeroy de Galhau, took a more nuanced stance. He highlighted the importance of maintaining high rates for an extended period, with any additional hikes being limited. 

Elsewhere, market expectations reflect a July rate hike, given the ECB’s implicit commitment. Moreover, they have factored in another move in September or October, projecting a peak rate of 4%.

Isabel Schnabel, another German ECB board member, also stressed the risk of continued price growth. She highlighted the potential of a challenging wage-price spiral.

EUR/USD key events today

Investors expect data from the US on initial jobless claims and existing home sales. Furthermore, Fed Chair Jerome Powell will continue with his testimony to Congress.

EUR/USD technical outlook: 1.1000 resistance might trigger a pullback.

EUR/USD technical outlook
EUR/USD 4-hour chart

EUR/USD has made a new high above the 1.0950 resistance level, strengthening the bullish bias. This comes after the price pushed off the 30-SMA support. Moreover, the RSI has entered the overbought region, suggesting solid bullish momentum.

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However, this is also an extreme level for bulls and might allow bears to return and retrace the recent move. Bears will return if the bulls cannot break above the 1.1000 key resistance level. A pullback would likely retest the 1.0950 key level.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.