Stickiness in Eurozone CPI Keeps Hawkish ECB Expectations Alive

Core CPI RisesThe final eurozone CPI readings for June, released today, confirmed headline CPI at 5.5%, as expected. However, core CPI was once again seen rising slightly to 5.5% from 5.4% prior. Stickiness in inflation at elevated levels has been a major issue for the ECB and is keeping hawkish expectations entrenched. The ECB itself has signalled that further tightening will likely be necessary in order to bring inflation back to target at a quicker pace. While the central bank acknowledges that there are signs that inflation is cooling, they are still not satisfied with the pace of the cooling and see the need for further action.Bullish Outlook for EURWhile this narrative remains in place, EUR looks likely to stay supported near-term. EURUSD in particular is a strong candidate for further upside given the shift we’ve seen in Fed tightening expectations. With CPI having cooled again sharply last month, the market has dialled back its Fed tightening expectations with a lengthy pause now projected after this month’s FOMC, to be followed by rate cuts early next year. With the ECB expected to continue hiking through this timeframe, the pair should remain supported near-term.Technical ViewsEURUSDThe rally in EURUSD has seen the market breaking out above the 1.1126 level as the bull channel continues to develop. The move has stalled for now though, with momentum studies positive the focus remains on further upside while price holds above the 1.1126 level, keeping 1.1503 in view as the next target for bulls.