EUR/USD Daily Forecast – Euro Retreats as Dollar Dominates on Powell’s Speech

The US dollar rallied broadly in the North American session on Wednesday after Fed Chair Powell made it clear the central bank was not looking to take rates into negative territory.

Powell referenced back to a Fed meeting in October where all members of the FOMC agreed that there were better policy tools compared to negative rates.

The Fed Chair highlighted four tools recently implemented and suggested that policymakers would rather expand on those existing tools than to introduce negative rates.

While Powell did not completely close the door on further Fed easing, he emphasized the importance of fiscal stimulus to avoid long-term damage to the economy and help with a stronger recovery, when it comes.

Powell expects the unemployment rate to peak over the next month or so but said it will likely remain above levels seen over the past few years for some time.

The dollar pushed firmly higher yesterday and has held near highs into the European open today with EUR/USD retreating once again towards important support near 1.0800.

Weekly unemployment data will be released later in the day and the report is expected to show another notable rise in the number of new people filing for claims. The median analyst estimate is for an additional 2.5 million jobless claims versus 3.2 million claims in the prior week.

Technical Analysis

The EUR/USD exchange rate is once again testing a confluence of support that comes from a horizontal level at 1.0800 and a rising trendline that originates from the low in March.

So far, bulls have lifted the pair higher on two prior tests of the trendline. This is considered an inflection point for the pair and a bearish break could accompany an acceleration to the downside.

While above trendline support, EUR/USD continues to trade within the bullish recovery that started a week ago.

Resistance for the session ahead is seen at 1.0848 which served to hold the pair lower earlier in the week. A downside break of support at 1.0800 puts the focus on the May low of 1.0768.

Bottom Line

• EUR/USD has erased the week’s gain as the dollar gained broadly on Powell’s speech.
• Weekly unemployment data will be released next. Analysts are expecting the report to show 2.5 million new claims.