EUR/USD Forecast: Bulls lose interest before Lagarde and Powell speak on policy

EUR/USD has recovered modestly after having dropped below 1.0500 for the first time in nearly a week in the early European morning on Wednesday. The renewed dollar strength and the risk-averse market environment don't allow the pair to gain traction as investors wait for European Central Bank (ECB) President and FOMC Chairman Jerome Powell to speak on the policy outlook.

On Tuesday, the Conference Board's (CB) monthly publication revealed that consumer confidence in the US continued to deteriorate in June. More importantly, the survey showed that the one-year consumer inflation rate expectation rose sharply to 8% from May's revised print of 7.5%. 

Following the Fed's June policy meeting, Powell explained that they decided to hike the policy rate by 75 basis points (bps) after they saw rising inflation expectations in the University of Michigan's Consumer Sentiment Survey. Hence, the dollar gathered strength after the CB data and caused EUR/USD to turn south.

Meanwhile, European Central Bank (ECB) policymaker Gediminas Simkus said earlier in the day that he was in favour of a 50 basis points rate hike in July and noted that such a decision was very likely. Nevertheless, the shared currency failed to capitalize on these comments with safe-haven flows continuing to dominate the financial markets. As of writing, the Euro Stoxx 600 Index was down nearly 1% on a daily basis.

Later in the session, ECB President Lagarde will speak on policy alongside Bank of England Governor Andrew Bailey and Fed's Powell. In case investors are reminded of the widening policy divergence between the Fed and other major central banks, the dollar could continue to outperform its rivals. In case Powell adopts a cautious tone by acknowledging heightened recession risks, the greenback could have a tough time finding demand.

EUR/USD Technical Analysis

There is a bearish tilt in EUR/USD's near-term outlook with the Relative Strength Index (RSI) indicator on the four-hour chart dropping toward 40. Additionally, the pair now trades below the 50-period and 100-period SMAs, as well as the two-week-old ascending trend line.

In case the pair confirms 1.0520 (Fibonacci 38.2% retracement of the latest downtrend) as resistance, it could target 1.0470 (Fibonacci 23.6% retracement) and 1.0400 (psychological level) next on the downside. 

With a four-hour close above 1.0520, EUR/USD could face immediate resistance at 1.0540 (50-period SMA, 100-period SMA) and 1.0560 (Fibonacci 50% retracement).