EUR/USD Forecast: Powell punches the dollar, infrastructure deal, GDP could extend the trend


  • EUR/USD has jumped after the Federal Reserve seemed in no rush to taper bond-buying.
  • US GDP stands out and also covid cases are set to move markets.
  • Thursday's four-hour chart is pointing to further gains.

"We’re not there" – these words by Federal Reserve Chair Jerome Powell on tapering its bond-buying scheme have been weighing on the dollar, and there may be more in store. The world's most powerful central bank has only taken a baby step toward reducing its $120 billion/month program in July, and August's Jackson Hole meeting is not necessarily the time to pre-announce such a move.

Powell said that the economy made progress but there is still "ground to cover." He insisted that inflation is only transitory and that millions of Americans have yet to return to work. The Fed took its "first deep dive" into the timing of tapering, but decisions will have to wait. 

After an initial dollar gain, the currency was sold off as prospects of additional greenbacks flowing to markets sent the dollar down. 

What about the virus? The Fed expressed concern by the rapid spread of the Delta variant and counts it as a significant risk to its outlook. However, Powell stressed that with every wave, the economic impact is diminishing

COVID-19 cases have hit a daily average of 66,000, up from roughly 15,000 in June but below the near 300,000 peak in January. Infections are still on the rise in Europe and bumped up in the UK on Thursday, but hopes from Britain show that the Delta variant can retreat fast. 

Will the dollar extend its decline? There are reasons to expect a positive mood in markets that would be unfavorable for the greenback.

A bipartisan group of senators reached an agreement on a $1 trillion infrastructure bill. While the legislation has additional hurdles to pass, additional spending by Uncle Sam is positive for the entire world. The risk-on mood may weigh on the safe-haven dollar

In the shorter term, the focus is on America's first release of Gross Domestic Product figures for the second quarter. Economists expect a blockbuster figure of 8.6% annualized after 6.4% in the first three months of the year. Investors will eye consumption, investment and also inventories. 

See US Q2 GDP Preview: Economy to continue to expand at strong pace, eyes on FOMC

Strong growth in the world's largest economy could also provide hope for the global economy, benefiting the euro among other currencies. 

In the old continent, preliminary German inflation figures are set to show an increase while employment figures are forecast to show a reduction in those out of work. The focus is on the US. 

EUR/USD Technical Analysis

Euro/dollar is benefiting from upside momentum on the four-hour chart and has convincingly broken above the 100 Simple Moving Average. It is now tackling the 200 SMA, which is just above the daily high of 1.1863. The Relative Strength Index is nearing 70 and another upswing could put it in overbought territory.

Above 1.1863 mentioned earlier, the next significant barrier is 1.1880, which held the pair down in mid-July. It is followed by 1.19 and then by 1.1945. 

Support awaits at 1.1840, the daily low, and then by 1.1820, 1.1770 and the July trough of 1.1750. 

See Inflation, the chip shortage and Delta are peaking, what it means for markets and the dollar

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

How do emotions affect trade?
Follow up our daily analysts guidance

Subscribe Today!    

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD tumbles to five-week low on rising US yields, energy crisis

EUR/USD has tumbled below 1.17, hitting the lowest since August 20 as Europe struggles with soaring gas prices and China suffers power cuts. ECB President Lagarde said the economy needs help. Fed Chair Powell is set to and US Consumer Confidence is also eyed.

EUR/USD News

GBP/USD plummets below 1.36 on stronger dollar, energy crisis

GBP/USD has plunged under 1.36, the lowest in 10 weeks. Markets are in a sour mood as China suffers from power outages. The British army is on standby to mitigate fuel shortages. The pound ignores the hawkish comments from BOE Governor Bailey. 

GBP/USD News

XAU/USD eyes $1730 and $1727 as next downside targets

Gold is off the lows but remains vulnerable amid the underlying narrative the Fed could announce a sooner-than-expected rate hike, as the TIPS market has also started pricing in higher future inflation. 

Gold News

Crypto markets prepare for a bullish October

Bitcoin price shows signs of bullish breakout as it traverses a falling wedge. Ethereum price also displays an optimistic outlook as it forms a descending parallel channel.

Read more

Why is Apple stock falling?

Apple stock (AAPL) took the rise in bond yields poorly on Monday as tech stocks and the Nasdaq suffered disproportionally. The Nasdaq closed the worst performing index of the day -0.81% while the Dow was actually positive and the S&P 500 lost just over a quarter of a percent.

Read more

Majors

Cryptocurrencies

Signatures