EUR/USD Forecast: Powell lifts the mood hinting at a just 25 bps rate hike
|EUR/USD Current Price: 1.1128
- EU and US policymakers temporarily returned the market's focus to inflation.
- Russian negotiator mentioned a possible ceasefire, further lifting the market's mood.
- EUR/USD has recovered the 1.1100 threshold, but bulls remain side-lined.
The EUR/USD pair fell to a fresh low of 1.1056, a level that was last seen in May 2020 amid concerns related to Russia's invasion of Ukraine. Moscow has moved on with its attacks on its neighbour country, although the local economy has started feeling the heat of the global financial blackout. Russian stock market has remained closed for the third consecutive day, although the Ruble managed to recover some ground after news reporting a ceasefire could be discussed in the second round of talks.
Meanwhile, the market's focus returned temporarily to soaring inflation. The EU preliminary estimate of the February Consumer Price Index soared to a record high of 5.8% YoY. Speculative interest forward bets for an ECB rate hike before year-end, despite policymakers noting that Eastern European developments are sending uncertainty to fresh, unknown levels. ECB's Lane said that the central bank "stands ready to take whatever action is needed to fulfil its responsibilities to ensure price stability and financial stability in the euro area." The ECB will have a monetary policy meeting next week.
In the US, US Federal Reserve chief Jerome Powell testified on the Semi-Annual Monetary Policy Report before the House Financial Services Committee. Powell hinted at a 25 bps rate hike in March, which helped Wall Street rebound, as market participants were betting on a 50 bps rate hike. He also referred to the new levels of uncertainty created by war. Additionally, the country published the ADP Employment Change report, which showed that the private sector added 475K new jobs in February, much better than anticipated.
On Thursday, Markit will release the final readings of its February Services PMIs for the EU and the US, while the latter will release February Challenger Job Cuts, the official ISM Services PMI, and Initial Jobless Claims for the week ended February 25. Fed's chief Powell will repeat its testimony before a different Congress Commission.
EUR/USD short-term technical outlook
The EUR/USD pair recovered the 1.1100 threshold in the American afternoon, helped by Wall Street's comeback. Technical readings in the daily chart, however, suggest that the decline may not be over. The pair posted a lower low and a lower high while developing below bearish moving averages. Additionally, technical indicators remain near oversold readings, although partially losing their bearish strength.
The 4-hour chart shows that the pair remains below firmly bearish 20 SMA, which keeps falling below the longer ones. The Momentum indicator resumed its decline within negative levels, while the RSI indicator consolidates around 38, indicating limited buying interest. The pair has room to extend its slump sub-1.1000 on a break below the aforementioned daily low.
Support levels: 1.1055 1.1010 1.0965
Resistance levels: 1.1135 1.1180 1.1220
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