EUR/USD Forecast: Set to slip amid stubborn resistance, fears that the Fed fails to fuel markets

  • EUR/USD has been edging lower as investors pare expectations ahead of Fed Powell's all-important speech.
  • US Durable Goods Orders and coronavirus headlines are of interest. 
  • Wednesday's four-hour chart is showing that the currency pair is capped by strong resistance. 

AIT – the new three-letter acronym that promises to down the dollar is not here yet, and the greenback is paring back its losses. AIT stands for Average Inflation Targeting – a new policy framework that will allow the Federal Reserve to surpass 2% for one year in order to compensate for weak inflation beforehand. 

So far, the fed aimed to cap consumer prices below 2% and raised rates amid an outlook indicating that inflation would move higher. The new framework means keeping interest rates lower for longer – thus weakening the dollar.

Speculation about this long-term change had been weighing on the greenback but may have reached its limit. Jerome Powell, Chairman of the Federal Reserve, will deliver his highly-anticipated speech on Thursday and that is when volatility will likely be unleashed. 

On Wednesday, the US releases Durable Goods orders for July, which are set to show an ongoing recovery in investment. See Durable Goods Orders July Preview: There is some catching up to do

Tuesday's figures were mixed, with New Home Sales topping 900,000 in July – the highest since 2006 – while consumer confidence disappointed with a drop to 84.8 points in August. 

The "fiscal cliff" that America experienced at the end of July – when federal unemployment benefits and other programs lapsed – could be taking its toll on sentiment. 

Investors are eyeing coronavirus developments. The US COVID-19 case curve continues its encouraging fall while deaths remain elevated, still around 1,000 per day. President Donald Trump will meet medical professionals later on Wednesday. He is keen to see a vaccine before the elections.

Infections are on the rise in Europe, with Spain at the forefront. Governments are reluctant to impose wide lockdowns and opt for localized measures so far. Things may change when temperatures drop and hospitals will encounter both flu and COVID-19 patients. 

Cases are falling in the US and rising in Europe:

Source: FT

German finance minister Olaf Schulz said the economy remains on course to return to pre-pandemic levels only in late 2021 or early 2022. 

Sino-American relations remain calm as China will reportedly buy a record amount of soybeans in 2020. While the world's largest economies are clashing on many fronts, they are aligned on trade relations – at least for now. 

Overall, speculation about Powell's speech is the primary driver, with several sideshows also having their say.

EUR/USD Technical Analysis

Euro/dollar is capped under 1.1850, which held the currency pair down in recent days – and is also where the 50 Simple Moving Average on the four-hour chart hits the price. EUR/USD is also struggling to hold onto the 100 SMA and momentum remains to the downside.

Overall, bears remain in control. 

Above 1.1850, the next level to watch is 1.1915, the peak in early August. It is followed y 1.1965, the recent two-year high.

Immediate support is at 1.18, followed by 1.1750, which was a swing low last week. The round 1.17 level remains a significant cushion after holding EUR/USD several times in August. 

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