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  • EUR/USD drops from 1.1315 to 1.1285 on dollar demand. 
  • Fed’s chairman Powell may strike an upbeat on Wednesday. 
  • On the data front, the focus is on Eurozone GDP and employment numbers.

The American dollar is drawing bids at press time and pushing EUR/USD lower, possibly on expectations that the Federal Reserve would strike an optimistic tone on Wednesday. 

EUR/USD is currently trading in the red near 1.1285, having put in a high of 1.1315 during the Asian trading hours. 

“Come Wednesday, we are looking for a more upbeat tone from Fed Chairman Powell on Wednesday,” noted BK Asset Management’s Kathy Lien and added further that, “monetary policy needs to remain accommodative but at this stage, there’s no need for more stimulus.”

Moreover, Friday’s surprisingly positive jobs report has revived the talk of a V-shaped economic recovery in the US. Indeed, the jobless rate is still hovering in double digits. Even so, many prominent observers, including Danske Bank analysts, are of the opinion that the worst is behind us and the healing has begun.

The Fed, therefore, has room to strike an optimistic tone. ” If Powell suggests that the contraction will be shallower than anticipated or the scenario is less severe, the dollar will rise,” according to Lien. 

Some observers, however, expect the central bank to sound dovish to keep long-term yields from rising sharply. Yields at the long end of the curve spiked on Friday, pushing the spread between the 10- and two-year yields to the highest level since 2018. 

Apart from the Fed expectations, the EUR/USD could take cues from the German Trade Balance (April) and Eurozone first-quarter GDP and employment numbers scheduled for release at 06:00 GMT and 09:00 GMT, respectively. The Fed rate decision is due on Wednesday. 

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