EUR/USD Forecast: It's all about Powell-inspired USD strength

EUR/USD has staged a modest rebound toward 1.0550 in the European morning on Wednesday after having touched its weakest level since early January at 1.0525 during the Asian trading hours. The pair's technical outlook shows that sellers remain in control. The ADP Employment Change data from the US could help EUR/USD extend its recovery if it comes in significantly lower than expected.

While testifying before the US Senate Banking Committee on Tuesday, "if totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of rate hikes," FOMC Chairman Jerome Powell said. He further added that the terminal rate projection will likely be revised higher than previously anticipated. These comments triggered a bullish rally in the US Dollar and weighed heavily on EUR/USD.

According to the CME Group FedWatch Tool, markets are currently pricing in a 75% probability of a 50 basis points Federal Reserve rate hike at the March policy meeting. 

Later in the day, ADP will release the private sector employment report, which is forecast to show an increase of 200,000 in February. In case this data comes in below 100,000, investors could refrain from betting on a 50 bps March rate increase at least until Friday's February Nonfarm Payrolls (NFP) report and open the door for a technical correction in EUR/USD. On the other hand, a stronger-than-forecast print is likely to weigh on risk sentiment and help the US Dollar keep its footing in the second half of the day.

Powell will testify before the House Financial Services Committee later in the day and he is expected to deliver the same prepared statement. Hence, his comments should not offer anything that markets haven't already seen on Tuesday.

It's worth noting that Powell's hawkish tone seems to be having an impact on the European Central Bank (ECB) rate hike expectations as well. According to Reuters, markets see a 65% probability that the ECB's terminal rate will be 4.25% this year, compared to 4.00% terminal rate only last week. Hawkish ECB bets could help the Euro limit its losses in the near term. 

EUR/USD Technical Analysis

Interim support for EUR/USD seems to have formed at 1.0530. With a four-hour close below that level, additional losses toward 1.0500 (psychological level), 1.0480 (2023-low) and 1.0450 (static level from December) could be witnessed.

On the upside, 1.0560 (former support, static level) aligns as initial resistance before 1.0580 (static level). In case the latter resistance fails, buyers could show interest and EUR/USD could extend its correction toward 1.0600/1.0610 (static level, 50-period Simple Moving Average (SMA) on the four-hour chart).