**A Detailed Look at the FX Market After Powell’s Speech: Technical Levels Matter**
*(Credit: Adapted from the analysis by Marc Chandler, Seeking Alpha)*
Federal Reserve Chair Jerome Powell’s recent testimony to Congress delivered a measured, cautiously optimistic assessment of the US economy. His remarks implied a less aggressive monetary tightening path while still reaffirming the Fed’s commitment to its inflation mandate. The currency and broader financial markets responded with nuanced movements. In this article, we will break down the implications for major currency pairs, technical levels to watch, and the broader context for FX traders moving forward.
### Recap of Powell’s Testimony: Themes and Takeaways
Powell’s comments highlighted several key factors influencing market expectations and, by extension, trading in the FX market:
– **Progress on Inflation**: Powell acknowledged inflation has come down significantly but remains above the central bank’s 2 percent target.
– **Labor Market Conditions**: A continued cooling in labor conditions was cited, without signs of broad-based deterioration.
– **Data-Dependence**: The Fed’s upcoming policy moves remain tied to incoming data, especially inflation and labor market reports.
– **No Imminent Cuts**: While acknowledging progress, Powell stopped short of signaling immediate rate cuts, emphasizing the need for more evidence.
The dovish tilt in his tone was limited, but investors still began speculating on the timing and magnitude of possible Fed easing in the second half of the year. As a result, movement in the US dollar and other major currencies reflected a combination of anticipation and uncertainty.
### Dollar Index: A Pause at the Crossroads
The US Dollar Index (DXY), which measures the greenback against a basket of peers, has experienced a period of sideways churn. After a modest retreat from recent highs, the DXY struggles to find a clear direction.
**Key Technical Levels:**
– **Support**: 104.80, then 104.30
– **Resistance**: 105.10 and further at 105.60
A move above 105.10 could open the way to a retest of the 105.60 highs seen earlier. On the downside, sustained losses below 104.80 would signal increased dollar weakness, potentially paving the way for a drop to the lower 104s.
**Contextual Factors:**
– US economic data has been mixed, neither strongly confirming nor invalidating expectations of a September rate cut.
– With Powell reinforcing a data-dependent approach, every significant data release (CPI, jobs reports, and PCE inflation) can trigger market volatility.
### Euro (EUR/USD): Range-Bound as Risk Appetite Rises
The euro has largely held stable, trading in a narrow range against the dollar. After finding support below 1.0700, EUR/USD has edged up toward the 1.0800 mark, in line with a slight softening in the dollar and some stabilization in European growth metrics.
**Key Technical Levels for EUR/USD:**
– **Immediate support**: 1.0760/50
– **Major support**: 1.0700
– **Initial resistance**: 1.0810/20
– **Major resistance**: 1.0850
A break above 1.0810/20 could target the 1.0840-1.0850 zone, while a drop below recent lows around 1.0750 would make the 1.0700 area critical.
**Drivers of Price Action:**
– Diminishing political risk in France after parliamentary elections helped allay investor anxieties.
– Softer US data briefly buoyed euro bulls, though a more pronounced move would require clear divergence between the Fed and ECB outlooks.
### Japanese Yen (USD/JPY): Intervention Fears Cap Dollar Strength
The yen remains subdued, with the Bank of Japan sticking to incremental adjustments rather than signaling an aggressive tightening stance. However, verbal and
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