EUR/USD Daily Forecast: Euro Extends Gains Above Key Resistance

Fed Chair Powell Outlined Downside Risks to Monetary Policy

In a prepared speech yesterday, Powell discussed some of the concerns and downside risks that the central bank faces.

There was a big emphasis on interest rates potentially falling to the effective lower bound in the event of persistent downside pressure on inflation. In such a case, the Fed would be forced to react.

This statement sent a message that the central bank is open to easing policy. However, my interpretation of it is that we are not quite there yet. Based on Powell’s rhetoric, I think it will take a few more weak inflation reports before the Fed actually acts.

He also very briefly commented that ongoing trade talks were being monitored and reaffirmed that the central bank would act, as with any other situation, if it were to pose a threat to the bank’s objectives.

Technical Analysis:

The trend and momentum in EUR/USD are clearly to the upside, especially after today’s break above 1.1260 resistance. This level had held the pair lower on twice in May.

An important consideration, however, is tomorrow’s Fed meeting. Often before an important economic event, the markets tend to slow a bit. Considering the recent surge in EUR/USD there will probably be some profit-taking ahead of the meeting as well.

On a daily chart, I see some resistance from the 38.2% Fibonacci retracement, measured from this years high to low. Currently, it falls at 1.1283.

The 100 day moving average remains in play. While the pair is currently trading above it, today’s closing price will be important relative to the indicator.

On a 4-hour chart, it is evident that EUR/USD respected resistance at 1.1260 yesterday. The pullback from the level was rather shallow, which signals strength. Buyers will likely defend the level on any dips today.

The next horizontal resistance level comes in at 1.1318.

Bottom line:

• I expect many traders will wait to position after the ECB meeting.
• Volatility may start slowing at the European close today, in anticipation of the central bank meeting.
• Although EUR/USD has taken out some very important resistance, there is still some further resistance within close proximity.