After refreshing its highest level in more than 14 months at 1.1490, the EUR/USD pair started to erase its gains as the greenback gathered strength against its competitors during Janet Yellen's, Chair of the Board of Governors of the Federal Reserve System, testimony before the Congress. As of writing, the pair is trading at 1.1410, losing 0.5% on the day.
The selling pressure on the greenback eased after Yellen sounded relatively optimistic about the state of the economy, helping the US Dollar Index recover to 95.74 from its session low of 95.27 in the NA session. However, the fact that Yellen didn't give a particular time regarding the commencement of the balance sheet reduction nor the timing of the next rate hike, limited the gains in the index. The index has been spending the last hour around mid-95s, where it was before Yellen's prepared testimony was released.
Tomorrow, Yellen will continue to answer questions from the Congress members. However, after seeing how she was able to dodge the critical issues and how she avoided giving clues regarding potential future monetary policy moves, it seems unlikely that tomorrow will be any different from today as far as the market reaction is concerned.
The economic calendar on Thursday will feature weekly jobless claims data and PPI figures from the United States. The only noteworthy data from Europe will be the final German CPI for June, which is expected to remain unchanged at 0.2% and 1.6% on a monthly and yearly basis respectively.
Technical outlook
With the latest retreat, the RSI indicator on the H4 chart corrected its oversold readings to turn neutral around the 50 mark, suggesting that the pair is not gathering any momentum in either direction in the near-term. 1.1500 (psychological level) could be seen as the initial target on the upside ahead of 1.1535 (May 5, 2016, low) and 1.1615 (May 3, 2016, high). On the downside, supports are located at 1.1380 (Jul. 11 low), 1.1300/1.1295 (psychological level/Jun. 28 low) and 1.1230 (May 24 high).
Headlines from Janet Yellen's testimony:
- Fed's Yellen speech: Balance sheet could shrink to normal levels by 2022
- Fed's Yellen speech: Given current taxing and spending decisions, debt is unsustainable
- Fed's Yellen speech: As short term interest rates rise, banks will compete for deposits, raise deposit rates
- Fed's Yellen speech: We recognize dangers of persistent undershooting 2% inflation objective
- Fed's Yellen speech: Very focused on trying to achieve 2% inflation target
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