Adapted and Expanded from an Article by Justin Low | Original Source: ForexLive via TradingView
EUR/USD Technical Analysis: Dovish Powell Sparks Dollar Decline
The EUR/USD exchange rate saw a notable uptick following comments from Federal Reserve Chair Jerome Powell that the market perceived as dovish. His words impacted bond yields and the US dollar, resulting in a technical shift for the EUR/USD pair. This article explores the detailed technical setup for the EUR/USD, analyzes market sentiment, and considers what traders should watch in the coming sessions.
Key Highlights:
– Federal Reserve Chair Jerome Powell’s comments signaled a dovish stance, leading to US dollar weakness.
– EUR/USD jumped higher, breaking key technical levels.
– Traders are reassessing rate expectations in light of Powell’s tone.
– Technical indicators now show bullish momentum building in the euro.
1. Market Reaction to Powell’s Comments
Following Jerome Powell’s testimony, market participants swiftly reevaluated their expectations for future interest rate hikes. Powell indicated that the US central bank may not be in a rush to further raise rates, a statement interpreted as a dovish pivot relative to earlier communications from the Fed.
– US Treasury yields fell sharply post-speech.
– The US Dollar Index (DXY) weakened, breaking below short-term support levels.
– Risk sentiment improved modestly, boosting currencies like the euro which are sensitive to dollar movements.
Powell’s language focused on continued progress in inflation moderation and implied a data-dependent approach for the months ahead, which some traders took as justification for revisiting rate cut forecasts for 2024.
2. EUR/USD Price Action: Bullish Technical Signal
The euro responded vigorously to the renewed weakness in the US dollar. The EUR/USD pair surged past its 100-day and 200-day moving averages, instigating technical buy signals that could foreshadow more upside in the near term.
Key technical levels breached:
– The pair climbed through its 100-day moving average at around 1.0780.
– Soon after, the 200-day moving average at the 1.0800 handle was also broken.
– The EUR/USD pair extended gains toward the 1.0850 and 1.0865 regions.
These movements were aided by both short-covering from bearish positions and new long positions entering the market, buoyed by improving technical momentum.
3. Short-Term Technical Setup
With the pair decisively breaking the 100- and 200-day moving averages, technical traders shifted their bias from neutral to bullish. Indicators began flashing confirmation signals of a trend reversal.
Short-Term Technical Observations:
– Relative Strength Index (RSI) approached the 60 level but remained under overbought territory, suggesting room for upside continuation.
– The stochastic oscillator began turning higher again, adding to momentum confirmation.
– The MACD (Moving Average Convergence Divergence) crossed above the signal line, providing a further bullish signal.
– Price action remained well supported with higher lows on shorter time frames (4-hour and 1-hour charts), signaling building bullish pressure.
Support and Resistance Levels to Watch:
Support:
– Immediate support now lies near the 200-day moving average at 1.0800.
– Further support can be seen around the 100-day moving average at 1.0780.
– Below these levels, the next support rests at the previous swing low at 1.0720.
Resistance:
– The next key resistance levels to watch are:
– 1.0900 psychological resistance.
– Previous highs near 1.0940.
– Longer-term resistance at 1.1000.
4. Broader Market Context
The euro’s strength did not happen in isolation. Broader market movements helped reinforce this directional move.
– German bund yields rose during the same period, underlining better performance for eurozone assets.
– Economic data in Europe showed modest improvement, lifting confidence in the European Central Bank’s policy outlook.
– Speculation also
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