EUR/USD Forecast: Will Powell boost the dollar?

EUR/USD has staged a recovery after dipping below 1.1300.

Retreating US T-bond yields make it difficult for the dollar to gather strength.

Focus shifts to FOMC Chairman Jerome Powell’s nomination hearing.EUR/USD has regained its traction after dropping below 1.1300 on Monday and seems to have gone into consolidation mode below 1.1350, early Tuesday. The pair remains at the mercy of the dollar’s market valuation and FOMC Chairman Jerome Powell’s nomination hearing could ramp up the volatility in the second half of the day.

Powell’s prepared opening statement, which was released on Monday, didn’t offer any fresh insights into the policy outlook. Powell will say that they aim to stop higher inflation “from getting entrenched” and reiterate that the US economy is expanding at its strongest pace in many years.

Market participants will pay close attention to the Q&A session and look for clues on the timing of the rate hike and the possible introduction of quantitative tightening. December’s policy meeting minutes showed that policymakers were planning to start reducing the balance sheet following the first rate increase and US Treasury bond yields shot higher on this development.In case Powell sticks to the hawkish outlook, we could possibly see another leg higher in yields, which could translate into renewed dollar strength. On the other hand, the greenback could find it difficult to attract investors in case Powell adopts a cautious tone.

European Central Bank (ECB) Chief Economist Phillip Lane said on Tuesday that he expects inflation to start falling this year. Lane noted that he does not see any market behaviour that suggests inflation will remain above the ECB’s target in the medium term – his comments have limited the shared currency’s potential gains for the time being.

Technical Analysis…On the four-hour chart, the Relative Strength Index is holding slightly above 50, suggesting that the bearish pressure is not yet strong enough to point to additional losses in the near term. Moreover, the pair is trading above the 200 and 100-period SMAs on the same chart.

On the upside, 1.1360 (static level) aligns as the first hurdle. In case this level turns into support, the pair could target 1.1380 (static level) and 1.1400 (psychological level). Supports are located at 1.1315/1.1320 (100-period SMA, 50-period SMA, 20-period SMA), 1.1300 (200-period SMA, psychological level) and 1.1280 (static level).EUR/USD is trading around 1.1350, consolidating the bounce amid a broadly weaker US dollar. Treasury yields pull back from two-year highs ahead of Wednesday’s US inflation data. Meanwhile, ECB Lagarde’s speech, Powell’s Testimony awaited. 

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