EUR/USD: Recovery remains capped below 1.1800, Fed’s Powell eyed

EUR/USD edges higher around 1.1780-85, up 0.06% intraday, heading into Wednesday’s European session. In doing so, the major currency pair rises for the first time in three days amid the US dollar pullback from a monthly high. However, the corrective pullback fades of late on cautious sentiment ahead of US Federal Reserve (Fed) Chair Jerome Powell’s testimony.

The currency-major pair dropped the most since mid-June after strong US CPI empowered the bears the previous day. Also backing the moves were the coronavirus (COVID-19) variant fears putting a safe-haven bid under the US dollar.

US Consumer Price Index (CPI) data for June jumped past 4.9% expected to 5.4% YoY while the core reading was also upwardly revised from 3.8% to 4.5%. It’s worth noting that the covid variant resurgence poses a downside risk to the Western economic transition from the pandemic, which in turn highlights the greenback’s safe-haven appeal.

On a positive side, US Senate Democrats agreed on a $3.5 trillion investment plan they aim to include in a budget resolution to be debated soon, Senate Majority Leader Chuck Schumer said, per Reuters. Though the uncertainty surrounding the US stimulus remains on the table, adding to the risk-safety moves.

It should, however, be noted that the soft bid on the 30-year bond auction seems to have recently probed the US Treasury yields. That said, the US 10-year Treasury yields step back from the weekly top, down 1.5 basis points (bps) to 1.40%, amid a sluggish Asian session. The dull sentiment could also be noted via the -0.08% intraday downside of the S&P 500 Futures.

Looking forward, Powell’s defense to the strong inflation data will be watched closely as any loose links may not hesitate to recall the USD bulls. Also important will be US Producer Price Index (PPI) data for June, expected 6.8% YoY versus 6.6% prior, as well as a speech from ECB policymaker Isabel Schnabel.

Read: Powell Preview: Three reasons to expect the Fed Chair to down the dollar

Technical analysis

Oversold RSI conditions and an ascending support line from November challenge EUR/USD bears around 1.1760. Also backing the hopes of a corrective bounce is the latest uptick in Momentum. Meanwhile, the recent bounce eyes the 1.1800 threshold but any further recoveries will be tested by a 13-day-old resistance line around 1.1865.