EUR/USD Forecast: Euro set to burst above 1.19 after Powell pummels the dollar

The jury is in – and the verdict is downing the dollar. The world's reserve currency has entered a more persistent downtrend after an initial whipsaw on Thursday – responding to a dovish message from Jerome Powell, Chairman of the Federal Reserve.

The world's most powerful central banker laid down a new policy framework prioritizing reaching full employment at the expense of letting inflation overheat. Powell and his colleagues at the Fed will also allow consumer prices to exceed the 2% target for one year in order to compensate for past low inflation. 

Investors hesitated at first, as price pressures are nowhere to be seen and the announcement was telegraphed in advance. However, while the news has no immediate policy implications – the Fed pledged low rates through 2022 – it implies lower borrowing costs for far longer. 

See Powell Quick Analysis: Fed fires on all cylinders, three factors fueling gold stocks, downing dollar

Thursday's high volatility – a move of over 100 pips within a short time, made way for a consistent march to the upside for EUR/USD. 

Investors continue shrugging off the increase in the old continent's coronavirus cases. Spain remains the leader in the grim contest and France is also in the spotlight after Parisians were ordered to wear face masks in all public places.

US COVID-19 infections are sloping downward, but deaths continue mounting at a worrying pace – passing the 180,000 threshold. Nevertheless, investors are steering the immense efforts to develop a vaccine and Abbott Laboratories' announcement of developing a rapid test – promising a result within 15 minutes and at a cost of $5. 

Friday's economic calendar features US Personal Income and Personal Spending for July – with both figures set to be more stable than in recent months. The federal government's massive fiscal stimulus kept Americans' income high through July. 

See Personal Income, Spending and Prices July Preview: The second opinion concurs

Thursday's batch of economic statistics was mixed. Second-quarter Gross Domestic Product was upgraded to a crash of 31.7% annualized. Continuing claims for the week ending August 14 – when Non-Farm Payrolls surveys are conducted – disappointed with 14.5 million. 

In US politics, two weeks of party conference ended with President Donald Trump delivering a long acceptance speech. For markets, his words about ending reliance on China "once and for all" are of interest. Nevertheless, investors have shrugged off the bluster.

Overall, several forces are set to shape trading, with echoes from Powell's speech likely to have the most dominant role. 

EUR/USD Technical Analysis

Euro/dollar is benefiting from upside momentum on the four-hour chart and trades above the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index is still below 70, thus outside overbought conditions.

All in all, bulls are in control. 

The currency pair is challenging 1.19, Thursday's peak, and a round number. The next cap is close, 1.1915, which was a high point in early August. The two-year high of 1.1965 is next.

Support awaits at 1.1850, which held EUR/USD down before the breakout, and it is followed by 1.18, which was a cushion last week. The next levels are 1.1755 and 1.17.

See: Fed Rundown: Lower for (even) longer, and what's next for the dollar after the whipsaw