EUR/USD looking for a direction, and the downside is looking better
- EUR/USD is consolidating its losses after the Fed was not dovish.
- Further reactions to the Fed, euro-zone data, and NFP tensions will shape the reaction.
- The technical picture remains slightly positive for the pair.
Is on its way down or did Powell’s power-play only serve as a necessary correction?
EUR/USD was making its way up on Thursday, buoyed by the weak US ISM Manufacturing PMI which came out at only 52.8 and by expectations that the Fed will open the door to a rate cut.
At first, the FOMC seemed to offer hope that the Fed is inching towards slashing rates. It cut the rate it charges on excess reserves (IOER) by 5 basis points, leading some to suspect a cut to the Fed Funds Rate is next. The central bank also acknowledged the lower inflation rate.
And then came Fed Chair Jerome Powell. He framed the IOER cut as a technical move. More importantly, he said that the lower inflation rate is transitory and due to temporary factors. Powell continued by expressing his satisfaction with growth and employment and noted the improvements in Europe, China, US-Sino trade talks, and also Brexit. To top it off, Powell stressed that the is patient on rates.
His confident message sent the US Dollar shooting higher across the board, with EUR/USD dropping from 1.1255 to below 1.1200, where it is consolidating.
What’s next? A transition day
The focus temporarily shifts to Europe that returns from the May Day holiday. Final Manufacturing PMIs are projected to confirm the contraction in the sector, with 47.8 points predicted on the euro-zone figure. US Jobless Claims, Productivity, and Factory Orders are of interest, but markets are already looking to the second critical announcement of the week.
Expectations for the US have risen following the blockbuster increase of 275K in private sector jobs, as published by ADP on Thursday. The consensus of economists, as shown in the FXStreet calendar, stands at around 180K.
All in all, it seems that the dollar’s retreat has come to an end. The Fed’s refusal to slash rates and higher expectations may extend the greenback comeback.
EUR/USD Technical Analysis
Momentum on the four-hour chart remains positive, the Relative Strength Index escaped overbought conditions, and the pair holds above the 50 Simple Moving Average which stands at 1.1190 at the time of writing. Alongside these bullish indicators, it is important to note that some Momentum has been lost and the pair failed in its attempts to break above the 100 and 200 SMAs.
Substantial support awaits at 1.1176, which was the low point in March and serves as a separator of ranges. 1.1140 is a soft support line after cushioning the fall in late April. The 2019 low of 1.1110 is next.
EUR/USD has battled 1.1210 in its recent recovery attempts. 1.1230 is the next line to watch. It limited the pair’s gains on its way up. The most important resistance line is 1.1255 that was the high point on Thursday.