EUR/USD Forecast: Dead cat bounce or an upwards move? Powell has (almost) all the power

Is the recent EUR/USD rise meaningful? The charts may tell different stories but the tales that Jerome Powell, Chairman of the Federal Reserve, provides later in the day may prove more telling for EUR/USD's next moves. 

Investors will look for clues on negative interest rates from Powell's Peterson Institute speech. Bond markets have temporarily priced in lowering borrowing costs under zero – a move that Fed officials rejected. Nevertheless, President Donald Trump has urged Powell to provide that "gift" and he will surely be asked about it, if not directly address the topic.

Opening the door to even lower rates would send the dollar tumbling down while refusing to endorse such a policy would send it higher. There are several other topics on the agenda, such as responding to recent inflation, employment, and the government's actions.

See Powell Speech Cheat Sheet: Five things to watch, stocks, dollar implications

The market mood is somewhat improving from blows it suffered on Tuesday. Anthony Fauci, the leading doctor on the White House's task force, said that reopening too quickly could cause coronavirus to spread, causing unnecessary suffering and deaths. His grim outlook was joined by the University of Washington's forecast of 147,000 US deaths by August. 

Ongoing Sino-American tensions – echoed most recently in the Senate – have also weighed on sentiment. On the other hand, Gilead's efforts to ramp up production of Remdesivir – a drug that proved some efficiency in helping COVID-19 patients – have improved the mood. 

In the old continent, economies are opening up gradually and trying to address the struggling tourism sector. European Commission President Ursula von der Leyen will speak provide details about coordination across Europe. Fears of the second wave remain prevalent as cases have ticked up in several German towns, while flare-ups have also been recorded in South Korea and China. 

Updated coronavirus statistics are of interest and may impact policy. 

Tensions around the European Central Bank's bond-buying scheme persist after last week's decision by the German constitutional court. The ECB dismissed the ruling that the QE program is illegal, but the bank's next steps are in danger. 

Overall, Powell's speech is the most significant event, but other events matter as well.

EUR/USD Technical Analysis

Euro/dollar is trading within an upside channel of sorts – support and resistance are not fully parallel. The series of higher highs and higher lows is bullish, but the moves are limited and the currency pair is trading below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. All in all, the picture is mixed. 

Support awaits at 1.08, where the uptrend support line hits the price. It is followed by 1.0785, which was a swing low earlier this week, and followed closely by 1.0765, May's low. The next levels to watch are 1.0730 and 1.0640.

Resistance awaits at 1.0855, which was a recent cap and where the 50 and 200 SMAs converge. The stubborn 1.0890 cap and 1.0925 are next. 

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