EUR/USD Forecast: Mood sours ahead of Powell’s testimony

EUR/USD Current Price: 1.0914

• Concerns about global economic growth undermined the market mood.
• United States housing-related figures beat expectations, fueling USD demand.
• EUR/USD buyers battling to maintain it above the 1.0900 threshold.

The EUR/USD pair fell to 1.0891 on Tuesday as a dismal market mood backed the US Dollar. Financial markets struggle to digest fresh concerns about China’s economic health after the local central bank cut key interest rates by 10 bps. The People’s Bank of China (PBoC) cut the one-year loan prime rate to 3.55% and the five-year loan prime rate to 4.2%. Financial markets doubted the trims were enough and sought refugee in the American currency.

EUR/USD managed to recover some ground during London trading hours. European Central Bank (ECB) Governing Council member Olli Rehn hit the wires. Rehn noted that underlying inflation is easing only gradually “but not to the extend desired.” His hawkish words reaffirmed the message delivered by the central bank last week and came as a no-surprise to financial markets.

Also, the Eurozone published the April Current Account, which posted a seasonally adjusted surplus of €4 billion, much lower than anticipated. Construction Output also missed expectations, declining by 0.4% MoM in the same month.

Upbeat United States data gave the US Dollar the final push, as Building Permits were up by 5.2% MoM in May, while Housing Starts surged 21.7%, well above the market’s expectations. US indexes plunged, while the Greenback advanced against most of its major rivals.

The US Dollar retains its strength ahead of the most relevant event of the week, Federal Reserve (Fed) Chairman Jerome Powell’s semi-annual testimony before Congress. His prepared remarks will be out way ahead of the event, but the latter includes a Q&A from lawmakers. The testimony extends for two days, although Powell’s words usually impact markets in the first round of questions.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it posted modest losses for a third consecutive day, yet the downside remains well-limited. The pair trades above all its moving averages, with the shorter one gaining upward traction just below the 100 Simple Moving Average (SMA). The 200 SMA, in the meantime, extended its advance, currently standing at around 1.0550. Finally, technical indicators remain well into positive territory, with uneven directional strength, although far from suggesting bullish exhaustion.

In the near term, and according to the 4-hour chart, the risk skews to the downside. EUR/USD develops below a still bullish 20 SMA, while the longer ones remain far below the current level. The Momentum indicator heads firmly south within negative levels, while the Relative Strength Index (RSI) indicator also heads lower but is currently at around 54, somehow indicating reluctant selling interest.

 Support levels: 1.0890 1.0850 1.0810

Resistance levels: 1.0945 1.0995 1.1040

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