EUR/USD Outlook: Eurozone Inflation Still a Key Concern for ECB

• Overall, Eurozone inflation slightly decreased to 8.5% last month.

• Underlying inflation in the Eurozone went up from 5.3% to 5.6%.

• The European Central Bank (ECB) has already signaled a half-point rate increase on March 16.

Today’s EUR/USD outlook is bullish. This spring, an unexpected rise in underlying inflation throughout the 20-nation Eurozone bolstered bets for larger rate increases by the European Central Bank. Officials fear that price rises will be significantly more persistent than anticipated.

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According to figures released on Thursday, overall inflation slightly decreased to 8.5% last month from 8.6% in January. However, most of the decrease was due to lower energy costs, while prices for most other goods and services, such as food and durable goods, increased once more.

An increase in underlying inflation from 5.3% to 5.6% adds to the mountain of other evidence that recent price increases are trickling down into other areas of the economy, including wages. Due to this, it will be more challenging to battle inflation.

The European Central Bank (ECB) has already signaled a half-point rate increase on March 16, and ECB President Christine Lagarde verified that on Thursday. This ended market rumors of a larger increase and refocused attention on the ECB’s second meeting in May.

The reports of the ECB’s February meeting, published on Thursday, did little to dispel market expectations that another 50 basis point increase will be implemented on May 4.

Policymakers are particularly concerned that the tight labor markets will cause price pressures to increase due to the 5% to 6% pay increases expected this year.

Concerns about the job market will likely worsen if economic growth is better than anticipated, which will also increase wages.

EUR/USD key events today

Investors will pay attention to the ISM non-manufacturing PMI from the US, which is expected to drop from 55.2 to 54.5.

EUR/USD technical outlook: Bulls push off the 1.0575 support

The 4-hour chart shows EUR/USD trading above the 30-SMA with the RSI slightly above the 50-level. The bulls have more momentum and are pushing the price higher after the 1.0575 support.

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Bears took over at the 1.0675 resistance and broke below the 30-SMA. They, however, paused at the 1.0575 support, where bulls took back control. The price will now be looking to retest the 1.0675 resistance.

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