Top Story

EUR/USD falls towards key support as dollar surges on Powell testimony

New Federal Reserve Chair Jerome Powell began his highly anticipated testimony in front of the US House Financial Services Committee on Tuesday, and his initial remarks sounded a distinctly hawkish tone. Though Powell reiterated the Fed’s long-used “gradual” qualifier to describe future policy tightening and interest rate hikes, the Fed Chair also asserted a highly optimistic perspective on economic growth, employment, wage growth, inflation, and fiscal policy. He also noted that this perspective has come about after the Fed called for three 2018 rate hikes in December. In doing so, Powell made a not-so-subtle implication that the pace of interest rate increases may potentially be adjusted higher, though he refused to “pre-judge” Fed officials’ collective rate forecasts that will be formulated and released at the next FOMC meeting in March.

As Powell essentially confirmed the Fed’s increasingly hawkish stance in his testimony, the initial market reactions conformed to what might have been expected given his comments. Stocks pulled back after two previous days of rallying as US Treasury bond yields surged to near multi-year highs once again. At the same time, newly raised expectations for higher interest rates boosted the US dollar sharply while pressuring gold prices.

In the case of EUR/USD, the substantial boost for the US dollar driven by Powell’s testimony helped push the currency pair down to approach its next major support target around the key 1.2200 level. In the process, EUR/USD also reached down to its 50-day moving average. As Powell’s testimony continues and his hawkish perspective on interest rates becomes even clearer, the dollar could be poised for further gains. In this event, any EUR/USD breakdown below the noted 1.2200 support level would be a key technical event that would confirm a potential double-top reversal pattern that has formed from the January and February highs above 1.2500. The 1.2200 support level represents the trough of that potential double-top. Any sustained breakdown confirming the pattern below that support level is poised to target the next key short-term target to the downside around the 1.2075 level.


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.