The euro may continue its rally. On Wednesday, the currency broke through 1.1300. Despite the dovish ECB, macroeconomic data indicate a possible shift towards a more aggressive stance. Record inflation may force the European regulator and Christine Lagarde to consider tightening. Consumer prices in the eurozone continue to increase rapidly, in line with analysts' expectations.
The annual inflation rate in the eurozone edged higher to a fresh record high of 5.1% in January from 5% in December. The market had not expected such an outcome. Neither of Bloomberg's respondents had anticipated another inflation rike. On the contrary, investors had projected a 4.4% slowdown in the rate.
The data came out before the ECB's Governing Council meeting. Therefore, a disagreement may arise over the pace of QE tapering among the council members. There has been speculation that another unexpected inflation hike will be a kind of test for the European regulator.
The euro's reaction to the inflation report was brief. The currency is unlikely to rise solely on these data. However, if the ECB adopts a hawkish stance, the euro will show steady growth.
Market participants expect the regulator to announce the first rate hike by the end of the year. Meanwhile, the ECB fiercely denies such a possibility. Let's see what the regulator says on Thursday.
Anyway, activity in markets increased after the release of the inflation report and the euro's reaction to it. Analysts started to revise their forecasts for EUR/USD. Scotiabank assumes the quote will head towards 1.1400 and break above the mark.
The euro has potential for growth despite the current corrective move. If buyers show willingness to extend the uptrend, the target levels will stand at 1.1369 (the high of January 20) and 1.1430 where the 100-day EMA and the 4-month resistance line intersect.
Meanwhile, the long-term forecast is likely to remain bearish as long as the price trades below the key 200-day SMA.