EUR/USD analysis: dollar bulls disappointed by Powell

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1257

Fed’s Chief Powell opened doors for more than one rate cut this year.
EU economic outlook far from encouraging, growth and inflation revised lower.
EUR/USD correcting higher, bullish potential limited by European economic weakness.

The EUR/USD pair has reached a fresh weekly high this Wednesday, as the dollar turned south following Fed Chief Jerome Powell´s semiannual testimony before the Congress, with the pair advancing up to 1.1262. Equities soared, commodities regained their positive momentum, and government bond yields retreated from fresh three-week highs, as the market now believes that there are chances that the Fed will cut rates more than once this year.

Dovish Fed, but also dovish EU outlook

The initial movement took place before the event, as the prepared remarks were delivered well ahead of it. The document showed that US policymakers consider that uncertainties since the June meeting have continued dimming the economic outlook, highlighting that trade tensions remain a critical issue. Furthermore, the Fed now thinks that there’s a risk weak inflation will be more persistent than anticipated, while, despite believing the jobs’ market remains strong, the current rise in wages, despite at healthy levels, is falling short from pushing inflation higher. Not that things in the Union are doing better. The EU Commission released a report cutting the Union’s growth and inflation forecasts for 2020, citing trade tensions and policy uncertainty, limiting the bullish potential of the shared currency. The FOMC released the Minutes of its latest meeting, but the document produced no market’s reaction, overshadowed by Powell’s testimony.

This Thursday, the macroeconomic calendar will include German June CPI, seen unchanged from the preliminary estimate of 1.6%, and the ECB’s Minutes of its latest meeting. The US will release the usual weekly unemployment claims figures, and the final June inflation estimates, with the core yearly figure seen unchanged at 2.0%. Powell will continue testifying before the Congress, but won’t add anything different to what he said this Tuesday.

EUR/USD short-term technical outlook

The EUR/USD pair is heading into the Asian opening trading a few pips below the mentioned daily high, offering a limited potential upward in the short-term, as, in the 4 hours chart, the rally was contained by selling interest aligned around the 200 SMA. The pair surpassed the 20 SMA, which is losing downward momentum around 1.1215, while technical indicators are losing their directional strength, but holding within positive ground. The pair settled above the 23.6% retracement of its latest daily decline, measured between 1.1401 and 1.1192 at 1.1245, while the 38.2% retracement of the same slide is located at 1.1275, providing an immediate resistance that the pair needs to surpass to continue advancing.

Support levels: 1.1215 1.1180 1.1140

Resistance levels: 1.1275 1.1320 1.1360

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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