EUR/USD defends 1.1900 ahead of Jerome Powell’s testimony

EUR/USD recovers from intraday low, pares daily losses to 0.07%, around 1.1910 heading into Tuesday’s European session. The major currency pair consolidated the previous day’s heavy bounce off early April levels as market sentiment dwindled amid mixed clues in Asia. However, broad optimism towards global economic recovery and receding fears of the Fed’s rate hike and/or tapering woes seem to back the latest run-up.

The Fed policymakers’ ability to convince traders of no immediate risks to the current monetary policy favored market sentiment on Monday. The risk-on mood dragged the US dollar index (DXY) amid a lack of major catalyst before the prepared remarks of the Fed Chairman Jerome Powell crossed wires. It should be observed that ECB President Christine Lagarde’s rejection of the bond purchase tapering also favored the EUR/USD buyers.

Fed Chairman Jerome Powell terms the inflation risk as transitory, suggesting no major challenges to the present monetary policies, per the published remarks. On the same line were comments from St. Louis Fed President James Bullard who sounded a bit calmer while saying that the low interest rates and low inflation rate era are not ending any time soon. Alternatively, New York Fed President John C. Williams takes multiple turns in his latest speech that recently mentioned that Fed is talking about talking tapering. Dallas Fed President Robert Kaplan was on the same line while favoring “taking the foot off the accelerator sooner rather than later.”

It’s worth noting updates over the US-China trade relations also add to the pair’s momentum of late. Following Bloomberg’s piece citing threats to the phase one deal due to Beijing's inability to import pre-agreed US goods, China’s Global Times termed the Sino-American talks at the make-or-break level.

Chatters over the coronavirus (COVID-19) variant and escalating economic recovery from the pandemic, not to forget cautious sentiment ahead of Powell’s testimony, act as extra catalysts for the market.

Against this backdrop, stock futures and US Treasury yields remain directionless, struggling to keep the previous daily gains, whereas the DXY bears take a breather.

Moving on, preliminary readings of the Eurozone Consumer Confidence for June, expected -3.0 versus -5.1 prior, will precede speeches from ECB’s executive board members, namely Philip Richard Lane and Isabel Schnabel, to direct immediate moves. The policymakers may confirm Lagarde’s cautious optimism and can favor EUR/USD bulls, together with upbeat data. On the other hand, US Existing Home Sales and Richmond Fed Manufacturing could also offer intraday moves to the pair ahead of Powell’s testimony. Although Fed Chair Powell is capable to convince markets of no need for immediate policy action, any negative surprises won’t hesitate to recall the EUR/USD bears.

Technical analysis

EUR/USD pulls back from 61.8% Fibonacci retracement of the March-May upside, around 1.1930, amid a receding bearish bias of the MACD signals, which in turn favor further weakness of the currency pair.