Powell’s Remarks at IMF Propel Dollar: A Deep Dive into Market Responses and EUR/USD Investing
The broader U.S. dollar entered the day on a subdued note but experienced a significant rally later, driven by surging yields following a lacklustre U.S. Treasury auction. Fed Chair Powell’s hawkish statements during an IMF panel further intensified the dollar’s upward momentum.
Powell’s Impact: Uncertainty on Future Hikes
In his remarks, Powell expressed the Federal Open Market Committee’s (FOMC) lack of confidence in achieving a sufficiently restrictive stance to bring inflation back to the 2.0% target consistently. He hinted that further progress on cooling price pressures is not guaranteed, and stronger growth could warrant higher rates. By the end of the day, the U.S. Dollar Index (DXY) showed a nearly 0.4% increase.
Market Dynamics and Future Expectations
Powell’s comments imply that the Central Bank is not entirely convinced that the hiking cycle is over. This leaves room for possible hikes in the next month or in January, especially if financial conditions continue to ease. Traders must stay vigilant as expectations shift with data releases. The upcoming October Consumer Price Index survey, scheduled for next Tuesday, becomes crucial in this context.
Economic Data Watch: October CPI Survey
Analysts project a 0.1% rise in the seasonally adjusted headline CPI, potentially bringing the annual rate down to 3.3% from 3.7%. The core gauge is expected to increase by 0.3% monthly, resulting in a yearly reading of 4.3%. Any upward deviation from these estimates could boost bond yields, strengthening the case for higher interest rates and positively affecting the dollar but posing challenges for gold, the euro, the Australian dollar, and the yen.
Powell’s Effect on EUR/USD: A Quick Retreat
After facing rejection from Fibonacci resistance at 1.0765, EUR/USD swiftly pulled back, currently hovering around the lower limit of a support band at 1.0650. Bulls face the crucial task of defending this floor to avoid a potential retest of the 2023 lows and a further decline towards trendline support at 1.0555.
Potential Scenarios: Best Time to Trade EUR/USD
A positive shift in sentiment could see EUR swap rates targeting the first technical barrier at 1.0765, where the 200-day simple moving average aligns with the 38.2% Fib retracement. Surpassing this level might reinforce bullish momentum, paving the way for a move towards 1.0840.
Exploring EUR/USD’s Directional Struggle Near 1.0700
EUR/USD is navigating around the 1.0700 region, exhibiting inconclusive trading. Potential bouts of weakness may find initial support near 1.0650, with further downward pressure targeting the 55-day SMA at 1.0645 and the weekly low of 1.0495. The pair’s outlook remains negative while below the 200-day SMA at 1.0801.
EUR/USD – Evaluating a Potential Bullish Formation Near Channel Peak
EUR/USD investing persists within a rising channel formation, resembling a bearish flag. Recent signs suggest a nuanced scenario. While the bearish flag isn’t perfect, recent price action near the upper channel indicates potential bullish momentum. The 4-hour chart highlights a possible bullish flag formation, especially after a recent breakout, signalling the pair’s resilience near the top of the longer-term channel.