EUR/USD: Focus on Fed chief Powell's speech

EUR/USD's weekly candle shows indecision in the market place.
Fed funds futures see the US interest rates falling below zero by June 2021.
Chairman Powell could dash hopes for negative rates during his speech on Wednesday.

Omkar Godbole FXStreet Contributor

EUR/USD is lacking a clear direction bias on Wednesday with investors adopting a wait-and-see approach ahead of Federal Reserve Chairman Jerome Powell’s speech on economic issues.

The currency pair is trading largely unchanged on the day near 1.0850. The long wicks attached to the current weekly candle indicate indecision in the market place.

On Tuesday, the fed fund futures contracts implied investors expected the interest rate would be negative in June 2021. Meanwhile, the rate options market was putting in a 23% probability of the key federal funds rate falling below zero by end-December, according to BofA Securities data. President Trump, too, tweeted that the US would benefit from negative rates.

However, a number of Fed officials like Richmond Fed's President Thomas Barkin and Chicago Fed's President Charles Evans have recently ruled out the idea of negative rates. The market expects Fed's President Powell to take cues from his colleagues and dash hopes for negative rates during his webcast with the Peterson Institute for International Economics, scheduled at 13:00 GMT.

Essentially, the bar of expectations has been set low. So, if Powell opens the doors to negative rates, the dollar will likely take a beating across the board.

The Eurozone Industrial Production data for March, scheduled for release at 09:00 GMT, could turn out to be a non-event for the EUR pairs. After all, the data dates back to the pre-lockdown period. That said, speech by the European Central Bank policymaker Lane, due at 11:00 GMT, could influence the single currency.

It's worth noting that the seasonality favors USD this month. "The 10-year average performance in May for the dollar index is +2.26% – by far its best month of the year," noted AxiCorp's Stephen Innes.

Technical levels

1. R3 1.0994
2. R2 1.094
3. R1 1.0894
PP 1.0839
1. S1 1.0793
2. S2 1.0738
3. S3 1.0692

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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