The euro strengthened against most other currencies following the release of the latest CPI report by Eurostat measuring headline inflation in the Eurozone. Have a look at our latest EURUSD analysis to get a better sense of where the single currency is headed next.
Inflation in the Eurozone accelerated for the sixth consecutive month in December, beating the market forecasts which were anticipating a moderate decline. Consumer prices advanced parallel to an upsurge of consumption in the Euro Area over the same period, bolstered by rising energy prices.
Despite the temporary strengthening of the euro inspired by the CPI data, the single currency continues to consolidate against the pound, as shown on the hourly chart above.
The consolidation is taking the form of a major Pennant pattern at the dip of the preceding downtrend. This could be a precursor to a major trend reversal currently in the making. The MACD indicator is elucidating a moderate increase of bullish momentum, though the underlying market bias remains mostly neutral.
The price action would have to break out above the 50-day MA (in green) and 100-day MA (in blue) before a new uptrend can begin developing. The two moving averages are currently threading near the upper limit of the Pennant, which is converging with the 23.6 per cent Fibonacci retracement level at 0.83546.
If such a decisive breakout does occur, it would most likely head towards the 61.8 per cent Fibonacci at 0.83868 next. Before the price action could climb so high, however, it would have to penetrate above the 200-day MA (in orange).
According to the findings of Eurostat, headline inflation in the bloc reached 5 per cent in December, the highest level on record. This measures a marginal increase of 0.1 per cent from a month prior. The consensus forecasts were instead anticipating a moderate contraction to 4.8 per cent.
The accelerating inflation underpins the latest fears of the European Central Bank (ECB), which accordingly decided to adopt a more hawkish stance during its last meeting in a bid to curb further jumps in consumer prices.