EUR/USD stands tall as US Dollar bleeds amid Trump's attacks on the Fed

EUR/USD is trading near 1.1690 at the time of writing, 0.4% higher on daily charts after bouncing from one-month lows at the 1.1620 area earlier on the day.. The upbeat Eurozone Sentix Consumer Sentiment Index has failed to support the Euro, but the US Dollar (USD) remains vulnerable as the US government ramps up its attack on Federal Reserve Chairman Jerome Powell.

The New York Times has reported on Sunday that Powell is under criminal investigation for his testimony before the Senate Committee regarding renovations to a Federal Reserve building. Powell has responded with a video, stating that the investigation is “unprecedented” and framing it as a series of threats aimed at bending the central bank's arm into lowering interest rates. 

Apart from that, violence has escalated in Iran, where the regime is reported to have killed hundreds of protesters this weekend, with the Threat of a US intervention looming.

The economic calendar is thin on Monday, but in this context, the speech from Atlanta Fed President Raphael Bostic will be observed with particular interest. Later this week, the release of the US Consumer Price Index (CPI) data, due on Tuesday, and a slew of speeches from Fed Officials might shed more light on the Fed's interest rate-cut path.

Daily Digest Market Movers: US Dollar remains vulnerable with Fed's independence into question

• The criminal probe against Fed Chairman Powell marks a new stage in the unprecedented political pressures on the central bank and a message to the next Fed chair. This undermines the central bank's independence to set its monetary policy and erodes the US Dollar's status as a reserve currency.
• Meanwhile, tensions in Iran continue growing. News reported that the Islamic regime's response to the protests in the country has caused hundreds of deaths, and Tehran has threatened to target US military bases if they detect signs of an impending attack.
• On the macroeconomic front, the Eurozone's Sentix Economic Confidence Index has improved to a reading of -1.8 in January from -6.2 in December. This is the best performance in the last six months and marks a significant improvement in investors' sentiment about the region's economy. The impact on the Euro (EUR), however, has been marginal.
• US data released on Friday revealed that the US labour market remains stalled but not deteriorating further. The jobless rate declined beyond expectations, adding to the case that the Fed will keep interest rates unchanged at its next monetary policy meeting, due on January 27 and 28.
• Beyond that, January's preliminary Michigan Consumer Sentiment Index rose to 54.0, from 52.9 in December, beyond the 53.5 reading expected by the market. These figures show the second consecutive improvement, which points to a stronger economic outlook and supports the idea of a steady monetary policy at January's Fed meeting.

Technical Analysis: EUR/USD recovery is likely to be tested at the 1.1700 area

EUR/USD has bounced up strongly from one-month lows at the 1.1620 area. The pair remains trading within a descending channel from late-December highs, but technical indicators on the 4-hour chart have turned higher.

The Moving Average Convergence Divergence (MACD) line has crossed above the signal line, hinting at a fading bearish pressure, while the Relative Strength Index (RSI) has breached the key 50 level, signaling some momentum improvement.

On the upside, the pair is likely to find significant resistance at the confluence of the channel's top with the January 7 high, near 1.1700. Above here, the target is the January 6 high, at 1.1742. To the downside, the pair has a significant support above 1.1615 (December 8 and 9 lows) ahead of the December 2 low, near 1.1590.

(The technical analysis of this story was written with the help of an AI tool.)