EUR/USD Forecast: Euro defines consolidation range ahead of Powell

• EUR/USD has retreated below 1.0500 in the early European session on Wednesday.
• The risk-averse market environment helps the dollar outperform its rivals.
• Investors wait for FOMC Chairman Jerome Powell to testify before Congress.

EUR/USD has lost its bullish momentum early Wednesday and retreated below 1.0500 before recovering modestly. The pair seems to have formed a consolidation channel in the 1.0560-1.0470 range and a break out of this area could trigger the next significant move.

Hawkish comments from European Central Bank (ECB) officials helped the shared currency find demand on Tuesday. With safe-haven flows returning to markets amid escalating recession fears on Wednesday, however, EUR/USD reversed its direction.

Bloomberg reported on Wednesday that economists at Citigroup now see a nearly 50% chance of a global recession. Reflecting the risk-averse market environment, US stock index futures are down between 1.6% and 2% in the early European session. 

Later in the day, FOMC Chairman Jerome Powell will testify before the US Senate Banking Committee. His prepared remarks are expected to be released before the event. As it currently stands, markets are pricing a more-than-90% probability of a 75 basis points (bps) rate hike in July. Hence, the dollar could lose interest if Powell reminds investors that they could opt for a 50 bps rate increase if they see signs of price pressures easing. On the other hand, the market positioning suggests that hawkish comments are not likely to have a significant impact on the dollar's valuation. Nevertheless, the greenback should be able to hold its ground unless risk flows start to dominate the markets.

During American trading hours, the European Commission will release the preliminary Consumer Confidence data for June. The market consensus points to a modest improvement and a disappointing print could hurt the euro and vice versa.

EUR/USD Technical Analysis

EUR/USD failed to make a four-hour close above 1.0560 on Tuesday, where the Fibonacci 50% retracement of the latest downtrend is located. This level now aligns as the upper limit of the short-term consolidation channel. 1.0600 (psychological level, Fibonacci 61.8% retracement of the latest downtrend, 100-period SMA) could be seen as the next hurdle before the pair could target 1.0660 (static level, former support).

On the flip side, a four-hour close below 1.0470 (Fibonacci 23.6% retracement) could attract sellers and open the door for an extended decline toward 1.0400 (psychological level) and 1.0380 (the end-point of the latest downtrend).

In the meantime, the Relative Strength Index (RSI) indicator on the four-hour chart is moving sideways near 50, highlighting the pair's indecisiveness.