- Eurozone inflation hit 8.6%, up from 8.1%.
- An inflation wake-up call for the ECB might lead to more extensive rate hikes.
- The US dollar has never been more attractive amid the global economic crisis.
Today’s EUR/USD forecast is bearish as the pair continues to suffer from downward pressure after Friday’s surge in inflation. Investors are scared for global growth prospects as this will push another central bank on a rate hike rampage that might destroy many vulnerable economies in the Eurozone. Some economies in the Eurozone have very high debt burdens, like Italy, and would not survive aggressive rate hikes.
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As a recession looms over the global economy, investors prefer having safe US dollars in their pockets. Eurozone inflation went up to 8.6% from the previous 8.1%, higher than the expected 8.4%. Inflation is now four times higher than the 2% ECB target, and there is a risk that it might be entrenched as people adjust to these new prices.
Friday’s inflation data might push the ECB to raise rates by 50bps in the September meeting.
“The Aussie and other commodity currencies, the euro, and sterling will likely decline even more into the week. Markets currently are super-focused on the risk of a sharp slowdown in the global economy,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia in Sydney.
EUR/USD key events today
Apart from speeches from two ECB officials, EUR/USD investors will not be expecting significant news releases from either the US or the EU. Therefore, the pair is likely to consolidate as the US celebrates Independence Day, an important public holiday.
EUR/USD technical forecast: Resistance at the 30-SMA
The 4-hour chart shows the price trading below the 30-SMA, showing it is a bear market. The RSI is trading below the 50 level, which favors bearish momentum. The price is trading between 1.04890, which acts as resistance, and 1.03620, which is support. These levels held the price on June 15 before it broke above them.
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The pair, at this point, might break below support and seek lower prices. It is also possible that the price pushes back to the resistance and 30-SMA, where it might find resistance before collapsing further. However, if it fails to find resistance, we might see a break above the 30-SMA and a change in the trend.
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Saqib Iqbal
