- The European Central Bank’s interest rates still have room to rise.
- ECB policymakers are concerned over persistent underlying inflation.
- The US central bank would likely need to increase interest rates to tackle inflation.
Today’s EUR/USD forecast is bullish. The Euro rose against the dollar as investors absorbed hawkish ECB remarks and awaited information on the Federal Reserve’s future policy move.
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Two key officials stressed Friday that the European Central Bank’s interest rates still have room to rise. This increased market pricing for the peak rate and dispelled low expectations from the previous policy meeting.
ECB board member Isabel Schnabel and French central bank president Francois Villeroy de Galhau, two of the 26 members of the Governing Council with the most sway, both expressed concern over persistent underlying inflation and opposed market pricing for interest rates.
Since July, the ECB has increased its benchmark interest rate by three percentage points and vowed to make another significant rise in March. However, markets started to question the ECB’s resolve early this month after considering some of its guidance to be unclear and non-committal.
From levels around 3.4% earlier this month, money markets now show investors betting on an ECB rate peak of around 3.75% by late summer.
Last week, several Federal Reserve officials warned that the US central bank would likely need to increase interest rates more to get inflation back to desired levels. Several banks have predicted three extra rate hikes this year due to this hawkish talk and hotter-than-expected economic figures.
EUR/USD key events today
Investors don’t expect any key economic releases from the US or the eurozone. The pair will likely consolidate as the US observes a public holiday.
EUR/USD technical forecast: Bulls challenging the 30-SMA resistance
The 4-hour chart shows EUR/USD trading near the 30-SMA and the RSI near the 50-level. These are both pivotal levels that show the market’s direction. Bears broke below the 1.0655 support level but could not trade below it as the price quickly reversed.
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Bulls made a strong candle before pausing at the 30-SMA. If they break above the SMA, sentiment will shift from bearish to bullish, with the RSI going further above the 50-level. The price will then likely head for the 1.0801 resistance. If the SMA holds as resistance, the price will fall to the 1.0600 key level.
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