EUR/USD Forecast: Fed fears fade and the rally may resume

When a Fed dove is in no rush to slash interest rates – the dollar rises. James Bullard, President of the Saint Louis branch of the Federal Reserve, has said that an interest rate cut of 25 basis points is all that is needed. Markets had been increasingly pricing in a deeper cut of 50bp until Bullard – a known dove – came out against such a move. Moreover, he wants to cut rates only as an "insurance" policy in the face of growing uncertainties and not as the beginning of an easing cycle consisting of further reductions in rates.

Bullard's words have sent the US dollar up and his boss – Fed Chair Jerome Powell – offered a similar message. Powell highlighted the strengths of the US economy and hinted at only one cut as well.

The greenback also enjoyed the risk-averse mood affecting markets. Tensions between the US and Iran have been intensifying after President Donald Trump said that he would "obliterate" the Middle-Eastern nation and Iranian officials said that Trump has a mental disorder. Iran sits on the Strait of Hormuz – where a third of global oil supply passes. 

On the other hands, markets are encouraged by the ongoing preparatory talks between the US and China ahead of the summit between Trump and his Chinese counterpart Xi Jinping. Both sides expect to resume official trade talks and investors want to see the US refraining from slapping more tariffs on the world's second-largest economy.

In the old continent, Germany's GfK Consumer Sentiment missed expectations with a drop to 9.8 points. Also, France and Germany seem unable to divvy up the top jobs – the new presidents for the European Commission and the European Central Bank. Both developments weigh on the euro.

The focus now shifts to a top-tier US indicator – durable goods orders for May. The data represents investment, feeds into GDP, and is eyed by the Federal Reserve. After substantial falls in April, an increase is projected for May.

See US Durable Goods Orders Preview: Recovery but where is the trend?

Overall, speculation about the next Fed moves, geopolitics, and US data will all have their say today.

EUR/USD Technical Analysis

EUR/USD has been trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart, momentum is positive, and the Relative Strength Index has exited overbought conditions – all bullish signs. 

Resistance awaits at 1.1375 which was the daily high. It is followed by 1.1415 that capped the currency pair's rise on Wednesday and is the highest level in three months. Further up, 1.1445 was a peak back in March, and the next hurdle is only at 1.1520.

Looking down, support awaits at 1.1350 which capped the pair in early June. It is followed by 1.1320 that was a stepping stone on the way up last week, and then 1.1270that provided support in mid-June.