EUR/USD Forecast: Powell’s dovishness triggers a US Dollar sell-off
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UNLOCK OFFEREUR/USD Current Price: 1.0994
- US Federal Reserve Chair Jay Powell ended up being much more dovish than anticipated.
- The focus now shifts to the European Central Bank decision on Thursday.
- EUR/USD holds near the 1.1000 psychological mark and aims to break it for good.
After seesawing between gains and losses, the EUR/USD pair finally broke higher and reached a fresh multi-month high of 1.1000 following the US Federal Reserve (Fed) monetary policy decision. The US Dollar gather some strength as an immediate reaction to the event but ended up plummeting as Chair Jerome Powell came out with some dovish words.
The central bank decided to hike its benchmark rate by 25 basis points (bps) as widely anticipated by market players. The statement showed that policymakers changed the wording on inflation, noting that it “has eased somewhat but remains elevated,” although there were no other relevant changes to the document. Furthermore, it noted that the Committee believes that “ongoing increases in the target range will be appropriate” to return inflation to 2%, hinting at more rate hikes in the docket.
US Fed Chair Jerome Powell started his statement by repeating the Fed is strongly committed to reaching its 2% inflation target. He also repeated that job gains have been robust, and the unemployment rate has remained low. However, he later added that, for the first time, “we can declare that a deflationary process has begun.” On the appropriate restrictive level, Powell said that a couple more rate hikes are needed to reach it. Finally, he ended up admitting that rate cuts could take place this year “if inflation comes down much faster.”
The EUR/USD pair had advanced during European trading hours amid upbeat Euro Zone (EU) macroeconomic data and poor United States figures. On the one hand, the EU Harmonized Index of Consumer Prices (HICP) rise by less than anticipated in January, up at an annualized pace of 8.5% in January. The preliminary estimate indicates that inflationary pressures receded further at the beginning of the year after peaking last October at a multi-decade high of 10.6%.
On the other, the US ADP survey on Employment Change showed that the private sector added 106K new positions in January, below the 178K expected and way below the 253K added in December. Furthermore, the ISM Manufacturing PMI for the same month printed at 47.4 missing the market expectations of 48.
With the market still digesting the US Fed decision, the focus shifts to the European Central Bank (ECB). The ECB Governing Council will announce its monetary policy stance on Thursday. President Christine Lagarde and co are widely anticipated to hike rates by 50 bps, a movement that has been fully priced in. Additionally, the ECB is expected to deliver detailed parameters for the reduction of the Assets Purchase Program (APP). The central bank anticipated a €15 billion reduction per month starting in March 2023 in its December meeting.
As for the US, the country will release Initial Jobless Claims for the week ended January 27, January Challenger Job Cuts, and the preliminary estimates of the Q4 Unit Labor Costs and Nonfarm Productivity. Employment figures become relevant ahead of the Nonfarm Payrolls report to be out on Friday.
EUR/USD short-term technical outlook
The daily chart for the EUR/USD pair shows that it trades just below the 1.1000 figure, retaining Fed-inspired gains. Technical indicators gyrated north, with the Momentum still struggling to signal a bullish continuation but holding above its midline. The Relative Strength Index (RSI) indicator, on the other hand, heads firmly north and is currently entering overbought territory. At the same time, the 20 Simple Moving Average (SMA) heads firmly up below the current level, while the 100 SMA is about to cross above the 200 SMA, far below the shorter one, all signaling a bullish continuation.
In the near term, and according to the 4-hour chart, the risk skews to the upside. Technical indicators point higher almost vertically, with the RSI currently at 72. Finally, the pair is over 100 pips above its moving averages, with the 20 SMA gaining upward strength at around 1.0870. A break through the 1.1000 figure will take more than one attempt, although once the level gives up, bulls will take full control of the pair.
Support levels: 1.0965 1.0920 1.0870
Resistance levels: 1.1000 1.1045 1.1090
EUR/USD Current Price: 1.0994
- US Federal Reserve Chair Jay Powell ended up being much more dovish than anticipated.
- The focus now shifts to the European Central Bank decision on Thursday.
- EUR/USD holds near the 1.1000 psychological mark and aims to break it for good.
After seesawing between gains and losses, the EUR/USD pair finally broke higher and reached a fresh multi-month high of 1.1000 following the US Federal Reserve (Fed) monetary policy decision. The US Dollar gather some strength as an immediate reaction to the event but ended up plummeting as Chair Jerome Powell came out with some dovish words.
The central bank decided to hike its benchmark rate by 25 basis points (bps) as widely anticipated by market players. The statement showed that policymakers changed the wording on inflation, noting that it “has eased somewhat but remains elevated,” although there were no other relevant changes to the document. Furthermore, it noted that the Committee believes that “ongoing increases in the target range will be appropriate” to return inflation to 2%, hinting at more rate hikes in the docket.
US Fed Chair Jerome Powell started his statement by repeating the Fed is strongly committed to reaching its 2% inflation target. He also repeated that job gains have been robust, and the unemployment rate has remained low. However, he later added that, for the first time, “we can declare that a deflationary process has begun.” On the appropriate restrictive level, Powell said that a couple more rate hikes are needed to reach it. Finally, he ended up admitting that rate cuts could take place this year “if inflation comes down much faster.”
The EUR/USD pair had advanced during European trading hours amid upbeat Euro Zone (EU) macroeconomic data and poor United States figures. On the one hand, the EU Harmonized Index of Consumer Prices (HICP) rise by less than anticipated in January, up at an annualized pace of 8.5% in January. The preliminary estimate indicates that inflationary pressures receded further at the beginning of the year after peaking last October at a multi-decade high of 10.6%.
On the other, the US ADP survey on Employment Change showed that the private sector added 106K new positions in January, below the 178K expected and way below the 253K added in December. Furthermore, the ISM Manufacturing PMI for the same month printed at 47.4 missing the market expectations of 48.
With the market still digesting the US Fed decision, the focus shifts to the European Central Bank (ECB). The ECB Governing Council will announce its monetary policy stance on Thursday. President Christine Lagarde and co are widely anticipated to hike rates by 50 bps, a movement that has been fully priced in. Additionally, the ECB is expected to deliver detailed parameters for the reduction of the Assets Purchase Program (APP). The central bank anticipated a €15 billion reduction per month starting in March 2023 in its December meeting.
As for the US, the country will release Initial Jobless Claims for the week ended January 27, January Challenger Job Cuts, and the preliminary estimates of the Q4 Unit Labor Costs and Nonfarm Productivity. Employment figures become relevant ahead of the Nonfarm Payrolls report to be out on Friday.
EUR/USD short-term technical outlook
The daily chart for the EUR/USD pair shows that it trades just below the 1.1000 figure, retaining Fed-inspired gains. Technical indicators gyrated north, with the Momentum still struggling to signal a bullish continuation but holding above its midline. The Relative Strength Index (RSI) indicator, on the other hand, heads firmly north and is currently entering overbought territory. At the same time, the 20 Simple Moving Average (SMA) heads firmly up below the current level, while the 100 SMA is about to cross above the 200 SMA, far below the shorter one, all signaling a bullish continuation.
In the near term, and according to the 4-hour chart, the risk skews to the upside. Technical indicators point higher almost vertically, with the RSI currently at 72. Finally, the pair is over 100 pips above its moving averages, with the 20 SMA gaining upward strength at around 1.0870. A break through the 1.1000 figure will take more than one attempt, although once the level gives up, bulls will take full control of the pair.
Support levels: 1.0965 1.0920 1.0870
Resistance levels: 1.1000 1.1045 1.1090
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