- US Dollar is being offered on dovish Fed.
- EUR/USD may fall apart if ECB minutes hint at a rate cut.
EUR/USD is solidly bid while heading into the European session, courtesy of the dovish testimony by the US Federal Reserve President Jerome Powell.
The currency pair is currently trading above 1.1265, the level which marks the confluence of key technical lines like the 4-hour chart 50- and 200-candle moving averages and the trendline connecting May 30 and June 18 lows.
The US dollar is being offered as expectations of a July rate firmed up following Powell’s dovish talk. The market is now pricing 30 basis points of easing on 31 July. Goldman Sachs believes there is a 75% chance of the Fed cutting rates by 25 basis points this month and expects the bank to deliver another rate cut in September.
Most major investment banks expect the Fed to deliver two rate cuts this year. That, however, is generally accepted by now and priced in by markets. This is evident from the two-year Treasury yield, which is currently down 70 basis points on a year-to-date basis.
As a result, the drop in the American Dollar observed in the late US session and the Asian session could turn out to be a bear trap.
Focus on ECB’s minutes
The minutes of the European Central Bank’s June meeting are due for release at 11:30 GMT today.
The common currency could face renewed selling pressure if the minutes lay the groundwork for a deposit rate cut in September. President Draghi did emphasize the easing bias during his speech in Sintra last month.
The EUR, however, will likely surge if the minutes sound less-dovish-than-expected. That said, EUR/USD needs to close above the recent high of 1.1412 to confirm a bullish reversal.