EUR/USD forecast: Bears challenge 1-week old trading range support, focus remains on Powell's speech

  • Upbeat Euro-zone PMIs-led up-move turned out to be short-lived amid dovish ECB expectations.
  • Pickup in the US bond yields underpinned the USD and seemed to exert fresh pressure on Friday.
  • The Fed Chair Jerome Powell’s speech at Jackson Hole looked upon for a fresh directional impetus.

The EUR/USD pair had good two-way price swings on Thursday and was influenced by a combination of diverging forces. The pair initially ticked higher and jumped to weekly tops in reaction better-than-expected flash Euro-zone PMI prints for August. The intraday up-move turned out to be short-lived and fizzled out rather quickly near the 1.1110-15 region, dragging the pair to a fresh 3-week low near the 1.1065-60 region.

Traders look to Powell’s speech

The positive reading was overshadowed by dovish ECB expectations and attracted some fresh selling at higher levels, though a modest US Dollar pullback - weighed down by disappointing US macro data and the US President Donald Trump's latest criticism about the Fed's monetary policy stance - extended some support and helped limit the downside.
Meanwhile, a goodish pickup in the US Treasury bond yields helped the greenback to regain some positive traction during the Asian session on Friday and exerted some fresh downward pressure on the major. In absence of any major market-moving economic releases, the key focus will remain on the Fed Chair Jerome Powell's scheduled speech at Jackson Hole Symposium.
Given that another rate cut in the September meeting is fully priced in, Powell's comments will be closely scrutinized to find out if the central bank is prepared to slash rates further. Should Powell refrain from signalling aggressive policy easing, the USD is more likely to build on its recent strength and pave the way for an extension of the pair's recent bearish trajectory.

Short-term technical outlook

From a technical perspective, the pair has now moved on the verge of confirming a bearish break through a one-week-old trading range support near the 1.1060 region, below which the downward momentum could get extended towards challenging the key 1.10 psychological mark with some intermediate support near yearly lows - around the 1.1025 zone. The pair could slide further towards testing a support marked by a descending trend-line extending from December 2018 - currently near the 1.0970 region.
On the flip side, any attempted recovery might now confront immediate resistance near the 1.1100 handle (100-hour EMA), which is closely followed by the top end of the recent trading range - around the 1.1115 region. A sustained move beyond the mentioned barrier might trigger a near-term short-covering move and lift the pair further towards the 1.1175-80 region, albeit any subsequent up-move is likely to remain capped near 100-day SMA - levels just above the 1.1200 round figure mark.


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