- After a brief spike after Powell’s speech, EUR/USD drops back toward 1.1225.
- US Dollar recovers ground against majors, down versus EM currencies.
The EUR/USD pair rose to 1.1266 after the release of Jerome Powell speech and quickly pulled back toward the daily low at 1.1225. As of writing trades at 1.1235, marginally lower for the day and far from the 6-week high it reached on European hours at 1.1275.
The greenback yesterday tumbled amid rising speculations about a rate cut from the Federal Reserve. Those speculations are lower today as shown by the CME Group FedWatch. The odds of a rate cut over the next meetings jumped on Monday and retreated today. The weakness seen in the greenback following Bullard’s interview yesterday was not repeated with Powell’s words. He said they will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective. The decline of the dollar was short-lived and could signal that the weakness may have already run its course. Still, the improvement in risk sentiment pushed the Dollar to the downside against Emerging Market currencies.
Regarding the Euro, after today’s EZ lower-than-expected inflation data, attention turns to Thursday’s ECB meeting.“The ECB will present the new funding scheme, but markets will focus on changes to the interest rate guidance, new forecasts, and the bank’s stance on the impact of trade. Recent developments have been unfavorable, implying a more dovish tone from Draghi and his colleagues. There is a significant downside risk – as not everything is priced in“, said Yohay Elam, analyst at FXStreet.
Analysts at TDS look for a broadly-dovish message to emerge from the ECB. “We are open-minded, and a higher EURUSD fits squarely with our longer-term view. That said, we think the bar for a meaningful rally in the short-term looks fairly high for now. The 200-dma at 1.1374 is the next major attractor to the topside.”
The positive tone of the Euro eased during the American session after being unable to hold on top of 1.1250. Below 1.1225, the next support is located at 1.1210 and 1.1175.
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