Euro (EUR/USD) Analysis and Chart
- EUR/USD Recover some of your previous losses
- Fed Chairman Powell’s comments lent some support to the dollar
- Trade likely to be weak in U.S. markets on Thursday inflation Numbers
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The euro recovered slightly against the US dollar in Asia and Europe on Wednesday as investors reviewed Federal Reserve Chairman Jerome Powell’s congressional testimony the previous day and awaited his second congressional testimony.
Arguably, he said nothing that the market had not already expected (and priced in) but the dollar still rose slightly on his remarks.
Powell essentially stuck to his guns, saying he needs more data to confirm a rate cut this year, but hopes prices are trending in the right direction. The central market talking point remains largely intact: a rate hike is highly unlikely.
The Fed is widely expected to be well placed to begin cautiously lowering U.S. borrowing costs by September, inflation permitting. But that expectation was there even before Powell’s comments.
EUR/USD is likely to trade in a fairly narrow range for now, at least until Thursday when the market sees the official US Consumer Price Index and the German inflation profile is also released.
Economists expect overall annual U.S. inflation to slow to 3.1% last month from 3.3% in May, but core inflation is more volatile and is expected to stabilize at 3.4%, still too high for the Fed but trending downward.
Germany’s “final” interest rate is expected to fall to 2.2% from 2.4% in June.
A second day of testimony from the Fed chairman typically has less of a direct impact on markets than the first, but investors may wait until Powell finishes speaking to be on the safe side.
EUR/USD Technical Analysis
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EUR/USD daily chart created using TradingView
The euro is hovering between the medium-term ascending and descending trendlines amid a narrowing trading range, with bulls still unable to achieve the retracement level at 1.08426 after repeatedly attempting and failing to secure a close above this level in recent sessions.
Any near-term gains would likely be called into question unless this level can be surpassed persistently, which seems unlikely.
The reversal finds support near 1.08 before the next retracement at 1.07964. It seems very likely that the broad range from 1.0850 to 1.06488 will restrict the market at least through the Northern Hemisphere summer trading period, when volatility traditionally eases at least a little.
EUR/USD is currently trading very close to its 200 day moving average, which is just below the current market price of 1.07994.
–David Cottle (DailYFX)
