EUR/USD: Market may have based longer term, bulls look to the 1.1570, 2019 high

Its been a busy day for the single currency. There has been a strong correlation to the performance of European stocks which have followed Asian stocks higher with the maintained dovish tone of Powell's testimony and the FOMC minutes the main driver. However, first of all, the ECB minutes showed that the Governing Council is ready to cut interest rates, while Board member B.Coeure said earlier in the day the central bank is concerned about the protracted low inflation in the region. The broad-based USD weakness has reversed where otherwise, with EUR higher by +0.15% into the New York open. The US inflation figures tracked by the Core Consumer Price Index, (CPI), rose above estimates during June: 0.3% inter-month and 2.1% from a year earlier. The CPI prints lifted US yields which have widened the spread differentials vs. their European peers and sunk the euro a touch. 

Powell's second day of testimony has essentially echoed yesterday which had temporarily dented the Dollar's advance leading up to the event, but the Dollar was able to shake off the prospects of a rate cut, considering the US CPI data means that the Fed is unlikely going to need to cut by 50bps and 25bps are already priced in. 

 Below are some key takeaways, per Reuters from today's Q&A:

• "Businesses are starting to hold back on investment, it has really slowed down here."
• "We see really weak economic performance in Asia and Europe."
• "Many of my colleagues on the FOMC have come to the view that a somewhat more accommodative policy may be appropriate."
• "Bad outcomes have happened when central bank independence is diminished."
• "We will always do what we think is right for the economy."

The euro is likely to be on the back foot in the absence of any hawkish ECB speeches or data surprises in the EZ and markets continue to price a 10bps in a rate cut by the ECB by the September meeting. However, longer term, should the Fed continue to cut rates and if the trade war backdrop does not improve, the dollar could come back under pressure. Should EUR/USd drift higher, bulls will look 1.1570, as the 2019 high.

EUR/USD levels

"We regard the April and May lows at 1.1110/06 as a turning point and continue to view the market as based longer term and target 1.1990 (measurement higher from the wedge)," analysts at Commerzbank argued.