EUR/USD Forecast: Recovers as Underlying Inflation Simmers

• The Eurozone saw a decrease in consumer inflation to 6.9% from 8.5%.

• Eurozone prices increased by 7.5% from 7.4% when unprocessed food and fuel were excluded.

• Markets are currently favoring a 25bps ECB hike in May.

Today’s EUR/USD forecast is bullish. Eurostat said inflation in the Eurozone decreased last month, but underlying readings remained persistently high. It confirmed earlier figures that had the European Central Bank concerned about the durability of price pressures.

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The 20 countries that make up the Eurozone saw a decrease in consumer inflation to 6.9% from 8.5%. This was because of a sharp decline in energy prices as natural gas prices continued to plummet after their spike a year ago in response to Russia’s invasion of Ukraine.

However, ECB policymakers are increasingly concerned that high energy costs have permeated the economy. Inflation continues to linger in everything from services to salaries, making it harder to control inflation.

Indeed, prices increased by 7.5% from 7.4% when unprocessed food and fuel were removed from the equation and by 5.7% from 5.6% when alcohol and tobacco were excluded.

Most ECB policymakers have previously stated that interest rates must keep increasing. The argument now is between a 25 and 50 basis points hike at the May 4 meeting. The outcome likely depends on the April inflation data, just two days before the decision.

Markets are currently favoring the smaller hike, but analysts still believe there is a one in three chance the ECB will opt for the larger one.

EUR/USD key events today

Investors will pay attention to the US, which will release several key reports. These include the initial jobless claims, the Philadelphia Fed manufacturing index, and the existing home sales report.

EUR/USD technical forecast: Confluence around trendline support

After an initial bounce higher from the trendline support, the EUR/USD paused at the 30-SMA resistance. This shows that bears are struggling to keep control. The RSI has also failed to trade above 50 and is moving sideways.

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The price is now consolidating between the 30-SMA resistance and the trendline support. Since the price has been chopping through the SMA, the trendline is a better gauge for direction. Therefore, the bias is bullish, meaning bulls might soon break above the 30-SMA to retest the 1.1075 resistance.

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