EUR/USD Forecast: Challenging the highs? After Trump and Powell's pumping up, retail sales are key

The "Powell Put" is alive and kicking – the Federal Reserve seems to have made good on its promise to act aggressively and proactively – announcing corporate bond-buying and sending stocks higher. The announcement changed the market mood and downed the dollar, allowing EUR/USD to recapture 1.13 and more.

The Fed is not deploying new funds – the Secondary Market Corporate Credit Facility (SMCCF). is worth $750 billion and was already announced in March. Nevertheless, the world's most powerful central bank will buy debt in markets – and even directly from companies – rather than via Exchange Traded Funds (ETF).

Moreover, the Fed includes companies that were highly rated before the crisis, even if they were downgraded to junk status. Jerome Powell, Chairman of the Federal Reserve, will testify later in the day and may provide more details. The long session may see a repetition of the messages conveyed by Powell less than a week ago – a slow recovery but willingness to act. However, it could contain surprises as well.

The generosity of the bank has wiped out concerns about coronavirus cases and hospitalizations rising in around 20 states, including Texas and Florida.

Source: New York Times

The increase in coronavirus cases is due to the quick reopening of the economy. Has it also led to increased sales? Economists expect a bounce in May's Retail Sales after they plunged by double-digits in April. Consumption is central to the world's largest economy and the publication is set to rock markets.

See Retail Sales Preview: Deferred consumption or cancellation?

Markets have also shrugged off concerns about the COVID-19 outbreak in Beijing, which has affected around 100 people and triggered the closure of markets in the Chinese capital. The world's second-largest economy – which seemed to have the disease under control – is now tested.

President Donald Trump added to market optimism. The White House is reportedly considering a $1 trillion infrastructure plan. The move makes sense ahead of the presidential elections, yet previous pledges to rebuild roads ended without action. Markets remain optimistic for now. 

Investors may also find encouragement in signs of a rapprochement between China and the US. Washington will allow US firms to use some of Huwaei's equipment. More importantly, Secretary of State Mike Pompeo may meet his Chinese counterpart Yang Jiechi in Hawaii. Reporting on the potential encounter are scant, amid the sensitivity of relations.

In the old continent, the German ZEW Economic Sentiment figures are forecast to reflect growing optimism. Berlin recently announced a large stimulus package worth €130 billion, the European Central Bank increased its bond-buying scheme – and coronavirus seems under control. 

Efforts to save the tourism season are underway in the EU and in several capitals as spring makes way to summer. Any outbreak may dampen the mood, but so far, the hardest-hit countries seem to keep the numbers low.

Overall, optimism is prevailing and may send euro/dollar to new highs, but last week's events showed that sentiment can change rapidly. 

EUR/USD Technical Analysis

While momentum on the four-hour chart is still to the downside, it is weaker than beforehand. Also, EUR/USD topped the 50 Simple Moving Average, another bullish development. 

Resistance is at 1.1375, which was a swing high last week. It is followed by 1.1425, the monthly peak, and then by 1.1495, the high point in March.

Support awaits at 1.1270, a stepping stone ont he way up, followed by 1.1240, a support line last week. Strong support is at 1.1210, Friday's trough. 

Explaining the potential EUR/USD rally, gold's driver, and much more – You can't miss the interview with Richard Perry!