EUR/USD: Bulls regain control and retest the 1.0550 zone

The single currency confirmed the U-turn and now pushes EUR/USD to the area of daily highs around 1.0550 on Wednesday.

EUR/USD up post-Powell’s testimony

EUR/USD now extends the advance for the third session in a row helped by the renewed selling pressure in the greenback in the wake of Powell’s Semiannual testimony before the US Senate.

Indeed, no surprises from Powell’s remarks after he stressed that financial conditions are now considerably tighter, adding that the Committee will decide on rates on a meeting-by-meeting basis.

Powell reiterated the Fed’s pledge to bring inflation down and highlighted that the US economy is well prepared to absorb tighter monetary conditions. He noted that the pace of rate hikes will hinge on the economic outlook and policy decisions remain data dependent.

Moving away from Powell, the European Commission will release its preliminary gauge of the Consumer Confidence in the region later in the session.

What to look for around EUR

EUR/USD regains the smile and manages to revert the initial pessimism in response to the lack of news at Powell’s testimony.

In the meantime, the single currency continues to closely follow any developments surrounding the ECB and its plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Flash EMU Consumer Confidence (Wednesday) – ECB General Council Meeting, Flash EMU, Germany PMIs (Thursday) – Germany IFO Business Climate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is up 0.16% at 1.0547 and faces the next hurdle at 1.0601 (weekly high June 15) followed by 1.0635 (55-day SMA) and finally 1.0786 (monthly high May 30). On the flip side, a break below 1.0358 (monthly low June 15) would target 1.0348 (2022 low May 13) en route to 1.0300 (psychological level).