EUR/USD Forecast: Fed Powell fuels the dollar’s demand

EUR/USD Current Price: 1.1240

• The dollar soared on a hawkish Fed as stocks plunged and yields jumped.
• US Federal Reserve chief Jerome Powell said this is the year for tightening.
• EUR/USD trades at fresh January lows and not far from 2021 low at 1.1185.

The EUR/USD pair remained under selling pressure through the first half of the day, trading below the 1.1300 level for most of the day, after peaking at 1.1310 during Asian trading hours. The dollar benefited from a dismal market’s mood, as tepid data released this week fueled concerns about a global economic setback.

The EU macroeconomic calendar had nothing to offer, while the US published the December Trade Balance, which posted a record deficit of -$100.9 billion, while New Home Sales in the same month were up 11.9%. Mid-US afternoon, the US Federal Reserve announced its monetary policy decision. As widely anticipated, policymakers left rates unchanged,

The US Federal Reserve left rates and taper unchanged, as widely anticipated, although the statement indicates that “ the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.” Ahead of the event, most market participants priced in a rate hike in March. There were no mentions to the balance sheet, but market’s were not expecting those.

 Chief Jerome Powell´s press conference was a mixture, as he expressed concerns about the current wave of coronavirus and its potential to damage the economy but also said that he expects inflation to decline over the course of the year. He added that the rate-hike path would depend on incoming data and noted that it is “impossible” to predict, although he also noted that there’s plenty of room to raise rates. The dollar benefited from his words, picking up across the FX board, as government bond yields soared while stocks trimmed early gains.

On Thursday, Germany will publish the GFK Consumer Confidence Survey, foreseen in February at -7.8 from -6.8 previously. The US will release weekly unemployment claims and December Durable Goods Orders, expected to have fallen by 0.5% in the month. Finally, the country will publish the preliminary estimate of Q4 Gross Domestic Product, expected to post an annualized growth of 5.4%.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows that it trades near a fresh monthly low of 1.1238, with a firmly bearish stance. The pair has fallen for a third consecutive day after being unable to surpass its 20 SMA, which is currently turning south. Meanwhile, technical indicators offer firmly bearish slopes within negative levels.

In the 4-hour chart, the bearish case is also clear. The 20 SMA is currently converging with a Fibonacci resistance level at around 1.1305 while heading firmly lower below the longer ones. Technical indicators head lower with uneven strength within negative levels, with the RSI approaching oversold readings.

Support levels: 1.1220 1.1185 1.1140

Resistance levels: 1.1305 1.1340 1.1385

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