EUR/USD: Surges to 1-Month High as Powell’s Hawkish Testimony Fails to Impress

Highlights

• EUR/USD reaches one-month high following Powell’s testimony.
• Doubts persist over feasibility of two more rate hikes.
• Market focuses on Fed’s decisions and potential impact on economic growth.

Overview

The EUR/USD reached a one-month high of $1.09925, extending Wednesday’s 0.65% surge as the U.S. Dollar weakened following Fed Chair Powell’s Congressional testimony. Powell’s comments aligned with the central bank’s previous meeting, and markets had already priced in significant hawkishness, resulting in little surprise. However, doubts persist about the feasibility of two more rate hikes this year, as market participants remain unconvinced.

Powell Offers No Surprises

Powell’s testimony failed to offer new insights or deviate from his usual messaging. Despite a 72% probability of a 25 bps hike next month, further rate hikes are not factored in, according to the CME FedWatch tool. The Fed’s stance indicates a data-dependent approach, leaving room for expectations to shift based on upcoming economic releases. Debate within the central bank on the necessity of additional rate hikes is growing, with Atlanta Federal Reserve President Raphael Bostic cautioning against further increases to avoid harming the U.S. economy.

Euro Strengthens on ECB Rate Hike Expectations

As the market sentiment remains influenced by the Federal Reserve’s decisions, the focus will continue to be on their actions and their potential impact on economic growth. The hope remains that a few more rate hikes by both the Fed and the ECB can be implemented without triggering a recession, given the current environment of soft growth. The ongoing discussions and decisions made by the Federal Reserve will likely drive market sentiment and direction over the next six months. The market’s anticipation centers on the potential for a couple more rate hikes without jeopardizing future economic stability.

Technical Analysis

The EUR/USD’s sentiment is currently bullish, supported by key technical indicators. The 4-hour price is slightly higher than the previous close, signaling upward momentum. It is also above the 200-4H and 50-4H moving averages, indicating a positive trend. The 14-4H RSI is nearing overbought territory, suggesting strong buying momentum.

Main support is identified between 1.0667 and 1.0635, while the main resistance ranges from 1.1006 to 1.1074. Traders should be cautious of potential price reversals around the main resistance area. Overall, the market sentiment favors a bullish outlook, but monitoring price action and key levels is essential for future direction.