The EUR/USD currency pair has shown resilience following a sharp decline at the start of the year. After hitting a fresh three-year low of 1.0220 on January 2, the pair managed to recover over 2%, reaching a four-day high on January 6.

However, this upward momentum encountered strong resistance at the top of the bearish channel, reinforced by the 100-day EMA on the 4-hour chart. Currently trading around 1.0420, EUR/USD is attempting to break out of the bearish channel and surpass the 100-day EMA, which could signal the beginning of a bullish recovery.

Despite the prevailing bearish trend that has dominated EUR/USD since Q4 2024, the sharp rebound in early January suggests the potential for a trend reversal or at least a temporary correction. While the short-term outlook for EUR/USD appears promising, longer-term challenges could still pose obstacles. Recent inflation data from Germany, which came in unexpectedly high, highlights the growing likelihood of inflationary pressures in the eurozone. In the near term, this supports the euro by reducing the chances of a drastic 50-basis-point rate cut by the European Central Bank (ECB) later this month. Instead, the ECB may opt for a more gradual adjustment to rates, which could provide additional support for the euro.