EUR/USD Forecast: Dollar Falls After Brief Rise on Fed Remarks

• EUR/USD forecast is slightly bullish after Fed’s cautiousness.

• Powell insisted that the central bank needs greater confidence to start cutting interest rates.

• Fabio Panetta said the ECB can continue to lower borrowing costs.

The EUR/USD forecast is bullish as the dollar retreats after rising in the previous session due to Powell’s cautious remarks. Meanwhile, ECB policymakers are calling for more rate cuts which could put pressure on further gains for the euro. 

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Markets perceived Powell’s speech on Tuesday as cautious. However, there were dovish tones which kept rate cut bets mostly steady. The recent jobs report raised market expectations that the Fed will cut rates in September. Therefore, investors had expected a similar reaction from the Fed. 

Unfortunately, Powell insisted that the central bank needs greater confidence to start cutting interest rates. Policymakers have decided to wait until the last minute to call for rate cuts. The last time inflation showed signs of easing, it reversed after most officials had assumed a dovish stance. Therefore, they had to shift their tone. To avoid another such outcome, the Fed will wait for more data to gain confidence that inflation will fall to the 2% target. 

The next major report will come on Thursday. The US will release consumer inflation numbers that could indicate further easing in price pressures. Economists expect an easing in the annual figure to 3.3%. Meanwhile, the monthly figure might increase slightly to 0.1%. 

Elsewhere, ECB policymakers are calling for more rate cuts as inflation nears the central bank’s target. Fabio Panetta said the ECB can continue to lower borrowing costs as inflation remains in line with the central bank’s expectations. Moreover, since interest rates are still high, they will eventually lower the stubborn services inflation.

EUR/USD key events today

• Fed Chair Powell’s testimony

EUR/USD technical forecast: Price prepares to bounce higher after SMA retest

On the technical side, the EUR/USD price has found support at the 30-SMA line and might bounce higher. The pair has been on a bullish trend since it found solid support at the 1.0675 level. An uptrend means that the SMA acts as support and the price bounces higher each time it retests the level. 

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Therefore, if the trend is still strong, the price might soon challenge the 1.0850 resistance for a new high. However, if bears have gained momentum, the price will break below the SMA to retest support levels like the trendline and the 1.0750 level.

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