The EUR/USD is consolidating weekly losses near the lows of early April.
As Treasury yields break a three-day upswing, the US currency loses ground.
Market mood is still negative, owing to anticipation that Powell will take a defensive stance.
Traders can also be directed by the US PPI, EU Industrial Production, and the ECB’s Schnabel.
Going into Wednesday’s European session, the EUR/USD is trading around 1.1780-85, up 0.06 percent intraday. The major currency pair thus climbs for the first time in three days, despite the US dollar’s retreat from a monthly high. The corrective pullback, however, has faded recently due to cautious mood ahead of US Federal Reserve Chair Jerome Powell’s testimony.
After robust US CPI strengthened the bears the day before, the currency-major pair plunged the most since mid-June. Fears about the coronavirus (COVID-19) variant putting a safe-haven bid beneath the US dollar also supported the swings.
The core reading of the US Consumer Price Index (CPI) was also raised upwards from 3.8 percent to 4.5 percent in June, exceeding the 4.9 percent forecast. It’s worth mentioning that the reappearance of the covid variety poses a risk to the Western economy’s recovery from the pandemic, highlighting the greenback’s safe-haven attraction.
On the plus side, according to Reuters, US Senate Democrats have agreed on a $3.5 trillion investment proposal that would be included in a budget resolution to be considered soon. The risk-aversion actions are exacerbated by the uncertainties surrounding the US stimulus package.
The soft bid on the 30-year bond auction, on the other hand, appears to have recently explored US Treasury yields. However, after a lackluster Asian session, US 10-year Treasury rates retreated from their weekly highs, falling 1.5 basis points (bps) to 1.40 percent. The -0.08 percent intraday fall of the S&P 500 Futures reflects the gloomy mood.
Powell’s response to the robust inflation figures will be widely scrutinized in the coming weeks, as any loose links might cause the USD bulls to flee. The US Producer Price Index (PPI) data for June, which is predicted to rise 6.8% YoY vs 6.6 percent in May, as well as a speech by ECB policymaker Isabel Schnabel, will be key.
Powell’s Predictions: There are three reasons to believe the Fed Chair will lower the dollar.
An ascending support line from November and oversold RSI circumstances pose a challenge. Around 1.1760, the EUR/USD is on the decline. The new spike in Momentum also adds to the hopes of a corrective bounce. Meanwhile, the recent rally is aiming for the 1.1800 level, but any further gains will be checked by a 13-day-old resistance line near 1.1865./n
