EUR/USD Forecast: Weakening after ECB’s announcement, Powell coming up next

EUR/USD Current price: 1.0868

• The European Central Bank left rates unchanged as expected, downwardly revised inflation, growth.
• Federal Reserve Chair Jerome Powell will testify on monetary policy for a second consecutive day.
• EUR/USD aims to extend its ECB’s inspired decline, which is limited amid the weakness of the USD.

The EUR/USD pair peaked at 1.0915 on Wednesday, its highest in six weeks, as the US Dollar lost ground following comments from Federal Reserve (Fed) Chairman Jerome Powell. Powell testified about the Semi-Annual Monetary Policy Report before the House Financial Services Committee and commented on monetary policy. Pretty much he repeated the well-known message of maintaining rates higher for longer, adding future decisions will depend on data. He also reiterated that the policy rate is likely at its peak and that  policymakers considered it appropriate to dial back the monetary policy “at some point this year.” Chair Powell will testify again on Thursday, although before a different commission.

Meanwhile, the upbeat tone of equities backed optimism. The US Dollar remained under selling pressure, but EUR/USD stabilized around the 1.0900 level, as investors stood side-lined ahead of the European Central Bank (ECB) monetary policy announcement. The central bank kept rates on hold for the fourth consecutive meeting, leaving the Rate on Deposit Facility at 4% and the Main Refinancing Operations Rate at 4.5%. The central bank downwardly revised growth and inflation forecast, weighing on the common currency, despite broad US Dollar weakness.

President Christine Lagarde is now offering a press conference, although little surprise is expected there. It is worth adding that Federal Reserve (Fed) Chairman Jerome Powell will testify again about monetary policy, although before a different Congressional commission.

EUR/USD short-term technical outlook

The EUR/USD pair peaked a few pips below the 50% Fibonacci retracement of the 1.1139/1.0718 slide at 1.0917, so far holding above the 38.2% retracement of the same slide at 1.0865, the immediate support level. From a technical point of view, EUR/USD daily chart indicates it could ease further. Despite the broad US Dollar’s weakness, the pair pressures daily lows in the ECB’s aftermath, and technical indicators gain downward traction within positive levels. The same chart shows that the pair remains above all its moving averages, confined to a tight 30 pips range.

In the near term, and according to the 4-hour chart, the case for a downward extension seems stronger. Technical indicators head south almost vertically, still developing above their midlines. The 20 Simple Moving Average (SMA) is partially losing its bullish strength around the aforementioned Fibonacci support, while the longer ones remain far below it. Finally, the 100 SMA aims to cross above the 200 SMA, both at around 1.0810. Overall, the pair seems poised to correct lower, although a steeper decline seems unlikely amid limited USD demand.

Support levels: 1.0865 1.0810 1.0770

Resistance levels: 1.0915 1.0950 1.1000