EUR/USD Forecast: Euro well-positioned to benefit from a dovish Powell

  • EUR/USD has been holding up amid terror in Afghanistan and mixed US data.
  • Fed Chair Powell's critical Jackson Hole speech may fall short of taper hints, weighing on the dollar. 
  • Friday's four-hour chart is showing bulls are in control.

When will the Federal Reserve taper down its bond-buying scheme? That has been the most important question for investors in recent weeks and months – and some expect Chair Jerome Powell to provide answers on Friday. However, he may remain silent and sink the dolar. 

The US economy is recovering at a rapid clip, as Thursday's updated second-quarter growth figures reminded markets. At 6.6% annualized expansion, hiring at nearly one million jobs in July, and rising inflation, Fed hawks want to withdraw some of the stimuli. The bank buys $120 billion worth of bonds every month and reducing this sum would revalue the greenback and also bring forward a future rate hike. 

On the other hand, the Delta COVID-19 variant continues spreading rapidly in the US, even prompting the Fed to hold the venue for Powell's speech – the Jackson Hole Symposium – online. Uncertainty implies caution. Another reason to refrain from making bold statements is the fact that fresh job figures are due next week and the bank's next decision is in mid-September – not too far away. Perhaps most importantly, Powell is a dove. 

Fed Chair Powell’s Jackson Hole Speech: Caution will win out

How much of Powell's dovishness is priced in? Probably only partially. Esther George, James Bullard, and Robert Kaplan – who seemed somewhat reluctant to act only last Friday – have called to kick off the tapering process on Thursday. Such comments have supported the dollar. 

The greenback also received safe-haven flows after the horrific terror attacks in Afghanistan. Suicide bombers killed around 70 people, including 13 American servicepersons. Fears of further US involvement in the war-torn country dampened the market mood. 

A dovish speech coming on top of a relatively bid dollar implies a fall for the currency. Ahead of the speech, US Core PCE – the Fed's preferred gauge of inflation – comes out and is expected to edge up from 3.5% to 3.6%. 

See US July PCE Inflation Preview: Fed taper outlook depends on Powell rather than inflation data

How is the euro positioned? The sole data point published in the old continent was German Importa Prices, which smashed expectations with a monthly rise of 2.2%. More importantly, covid cases are falling in Europe, providing hope for a smoother recovery. 

All in all, there is room for EUR/USD to end the week on a high note, propelled by Powell.

More Powell needs to answer these three questions

EUR/USD Technical Analysis

Euro/dollar continues benefiting from upside momentum on the four-hour chart and has topped the 100 Simple Moving Average in addition to breaking above the 50 SMA earlier this week. While the 200 SMA looms above the pair, bulls are in the lead.

Resistance awaits at 1.1780, the weekly high, followed by 1.1805, 1.1825 and 1.1860. 

Support is at the daily low of 1.1740, followed by 1.1725, 1.1695 and 1.1660. 

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