EUR/USD Outlook: ECB Faces Challenge Amid Higher Inflation

• Some analysts believe the dollar may have peaked as February’s rally loses momentum.

• In February, German inflation rose faster than anticipated.

• EU-harmonized prices increased by 9.3% compared to February last year.

Today’s EUR/USD outlook is slightly bullish. The Euro anticipated its best week in a month and a half due to sticky inflation, while the dollar nursed losses on Thursday as risk sentiment improved on China’s upbeat data.

–Are you interested to learn more about ECN brokers? Check our detailed guide-

Overnight, the dollar fell 0.9% against the euro. Given that this occurred despite rising US yields, some analysts believe the dollar may have peaked as February’s rally lost momentum.

In February, German inflation rose faster than anticipated, putting pressure on the ECB to hike interest rates.

The surprising inflation data from Europe’s biggest economy comes a day after Spain and France, two of the biggest economies in the eurozone, also reported increases.

According to preliminary data released by the federal statistics office on Wednesday, EU-harmonized prices increased by 9.3% compared to last year, above expert predictions of a rise of 9.0% and slightly higher than January’s 9.2% gain.

Despite relief measures, food prices rose by 21.8% and energy prices by 19.1% year over year in February.

Since July, the ECB has increased interest rates by 300 basis points and stated that it would make another significant increase in March. But several policymakers have argued for a more gradual approach after March.

Joachim Nagel, the president of the Bundesbank, rejected those calls earlier on Wednesday, arguing that while recent drops in energy prices may help to lower inflation in the short term, they have no bearing on it in the long run. 

EUR/USD key events today

Investors will be watching the US initial unemployment claims data. There will also be data from the eurozone, including inflation and the ECB meeting minutes.

EUR/USD technical outlook: The bullish move might resume at the 1.0635 support

The 4-hour chart shows EUR/USD in a bullish move above the 30-SMA, with the RSI showing strong bullish momentum above the 50-level. The price has made a higher high and a higher low, confirming the bullish trend.

–Are you interested to learn more about making money in forex? Check our detailed guide-

The price is currently in a pullback, retesting the 1.0635 support. If it holds, bulls might return to push the price to the next resistance at 1.0700. The price might, however, retest the 30-SMA before the bulls return.

Looking to trade forex now? Invest at eToro!

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.