EUR/USD Consolidates Ahead of Fed Chair Powell Testimony

US Dollar Forecast: EUR/USD

EUR/USD consolidates within last week’s range as Federal Reserve Chairman Jerome Powell is scheduled to testify in front of Congress, but the exchange rate may no longer tracks the positive slope in the 50-Day SMA (1.1365) if it fails to retain the advance from the start of the month.

EUR/USD Consolidates Ahead of Fed Chair Powell Testimony

Unlike the price action from earlier this year, the recent rally in EUR/USD failed to produce an overbought reading in the Relative Strength Index (RSI), and the exchange rate may face range-bound conditions over the remainder of the month as the Fed insists that ‘the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments.’

US Economic Calendar

In turn, Chairman Powell may stick to the same script in front of US lawmakers as ‘increases in tariffs this year are likely to push up prices and weigh on economic activity,’ and Fed officials may continue to endorse a wait-and-see ahead of the next interest rate decision on July 30 as the ongoing shift in fiscal policy clouds the outlook for growth and inflation.

However, there appears to be a dissent within the Federal Open Market Committee (FOMC) as Governor Michelle Bowman argues that a ‘small and one-off price increases this year should translate only into a small drag on real activity’ while speaking at an event held by the Czech National Bank.

Join David Song for the Weekly Fundamental Market Outlook webinar.

As a result, Governor Bowman goes onto say that ‘I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market,’ and the US Dollar may face headwinds over the remainder of the year as the central bank keeps the door open to further unwind its restrictive policy in 2025.

With that said, EUR/USD may continue hold above the 50-Day SMA (1.1365) amid speculation for a looming Fed rate-cut, but the exchange rate may no longer track the positive slope in the moving average if it fails to defend the advance from the monthly low (1.1347).

EUR/USD Chart – Daily

Chart Prepared by David Song, Senior Strategist; EUR/USD on TradingView  

• EUR/USD may consolidate over the remainder of the month as it appears to be stuck in a narrow range, but failure to hold above the 1.1390 (78/6% Fibonacci extension) to 1.1440 (61.8% Fibonacci extension) region may lead to a test of the monthly low (1.1347).
• A move/close below the 1.1260 (61.8% Fibonacci extension) to 1.1280 (61.8% Fibonacci retracement) area brings 1.1170 (50% Fibonacci extension) on the radar, but EUR/USD may defend the advance from the start of June should it continue to hold above the 1.1390 (78/6% Fibonacci extension) to 1.1440 (61.8% Fibonacci extension) region.
•  A breach above the monthly high (1.1632) may lead to a test of the October 2021 high (1.1692), with a move/close above the 1.1690 (78.6% Fibonacci extension) to 1.1750 (78.6% Fibonacci retracement) zone opening up the September 2021 high (1.1909).

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong