EUR/USD Forecast: Hangover on Powell's punch bowl and no painkiller in sight

EUR/USD is falling from the highs near 1.1400 as markets are having some second thoughts about Powell's dovish words. The Fed Chair said on Wednesday that "just below the broad range of estimates of the level that would be neutral for the economy." This contradicts his words in October that there is a "long way" before reaching neutral. Markets jumped and the US Dollar plunged.

But now we are seeing some profit taking and also some second thoughts. Some analysts challenge the notion that Powell went dovish and deviated from past comments. His upbeat words about the economy still support several rate hikes in 2019. Others stick to yesterday's narrative of a "Powell Put": a central bank that supports stocks when they begin falling.

We will get a full answer on December 19th, when the Fed publishes the new dot-plot - the forecast for rate increases. Today's FOMC Meeting Minutes from the Fed's November meeting may provide some clues about the next steps. While the minutes document an event that happened three weeks ago, it is important to remember that it is revised until the very last moment.

See:  FOMC Minutes Preview: Rate pause foreseen

So far, this hangover from Powell's words is mild, but it can intensify without a painkiller. And there is no clear painkiller for the Euro. Preliminary Spanish CPI figures for November show a deceleration to 1.7% YoY, worse than had been expected. Data from several German states such as Saxony and Brandenburg also show lower German inflation. The ECB's plans to raise rates next year are fading away.

Germany is in the limelight also due to corporate news. Prosecutors raided Deutsche Bank's headquarters in Frankfurt investigating a money laundering scheme and this adds to the common currency's misery. In addition, the German antitrust watchdog launches a probe into Amazon's practices. This impacts the broader markets mood.

Later today we will also receive the Fed's preferred inflation gauge: the Core PCE Price Index for October, which follows on a miss on the parallel Core CPI for the same month.

EUR/USD Technical Analysis

The technical picture is worsening for EUR/USD. It made an attempt to break above the 200 Simple Moving Average. After it failed, the pair is now trading below the 50 SMA. Momentum is barely positive after the rise.

Support awaits at 1.1355 that supported the pair in mid-November. 1.1325 was a cushion on Friday. The round number of 1.1300 was a double-bottom and separated ranges on Wednesday. 1.1270 was the low point on Wednesday ahead of the 2018 trough of 1.1215. 

1.1385 capped the pair early in the weak and defends 1.1400, a round number the pair nearly touched earlier in the day. 1.1435 was a high point a week ago and 1.1475 was the high point last week.