EUR/USD Price Forecast – Euro Gained Positive Momentum Following Dovish Powell’s Comments

The EURUSD pair saw sharp reversal in price action following dovish comments from Fed Chair Jerome Powell. The rebound was triggered in reaction to a drop in U.S. Treasury yields after Federal Reserve Chair Jerome Powell said he thinks U.S. interest rates were just below neutral which was taken by many investors as a tip that the rate hike cycle was nearing its end. Powell’s dovish remarks took the currency markets by surprise as he noted that the policy rate, at 2-2.25 percent, is now “just below” the broad range of estimates of neutral, which in September was 2.5-3.5 percent. This is in stark contrast to his words from October, when Powell said rates were a “long way from neutral at this point”. The Fed chairman’s remarks led to the dollar weakening across the board, especially versus riskier currencies and assets.

Today’s Price Action Has High Susceptibility To Macro Data Based Triggers

Powell’s comments were read as too hawkish back in October is viewed by analysts to have gone down a notch in latest comments but this also increases investor’s woes as many traders and analysts now doubt on how much more dovish markets can get in terms of rate hike expectations. As of writing this article, EURUSD pair is trading at 1.1387 up by 0.18% on the day. That said, the bullish tone may weaken if the European Central Bank (ECB) President Draghi sounds cautious on growth and inflation and puts more emphasis on Italy’s budget crisis. The possibility of continued positive price action would drop sharply if he preliminary German consumer price index, due for release at 13:00 GMT, shows a bigger-than-expected slowdown in inflation growth while the Fed’s preferred measure of inflation – the core PCE – remain at or above 2 percent, contradicting expectations for a drop to 1.9 percent.

The probability of a Fed rate pause in 2019 would rise sharply, sending the dollar lower across the board, if the core PCE prints below estimates. Later in the day, the focus would shift to Fed minutes release. When looking from technical perspective, The EUR/USD created a bullish outside candle yesterday as the intraday high and low engulfed Tuesday’s price action. A bullish reversal, however, would be confirmed only if the follow-through is positive, that is, the spot needs to close today above 1.1388. The short duration charts are also reporting bullish setup but investors remain cautious as today’s price action will be data dependent and investors have already seen unexpected twists.