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.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website 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.