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EUR/USD Forecast: Enjoying The "Powell Put," But We've Been Here Before

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EUR/USD Forecast: Enjoying The "Powell Put," But We've Been Here Before
  • EUR/USD is edging higher within the range as a new week begins.
  • Developments on US-Chinese talks and a top-tier US figure stand out.
  • The technical picture is mixed for the pair.

​​​​​​EUR/USD is moving up as the first full week of 2019 commences. Markets are optimistic after Fed Chair Jerome Powell spoke in Atlanta on Friday and boosted financial markets. He changed his tack on the balance sheet reduction and is now open to changing the policy. Just before Christmas, he said the policy of squeezing the balance sheet is on "autopilot." Also, he offered "patience" on rates and said the Fed could change its stance quickly. 

The "Powell Put" sent stocks rallying on Friday, and the move extends into the new week. The safe-haven US Dollar is on the back in this risk-on environment. His words came after the blockbuster jobs report. The Non-Farm Payrolls rose by a whopping 312K and wages accelerated to 3.2% YoY, a new cycle high. 

The upbeat mood is also stemmed by China. The world's second-largest economy is approving rail projects at a rapid rate. In addition, Beijing reduced the Reserve Requirement Ratio (RRR), allowing banks to lend more money, thus providing more stimulus to the slowing economy. 

Trade talks between the US and China resume today. US President Donald Trump's tweets on the topic are eyed.

Later in the day, the ISM Non-Manufacturing PMI is released in the US. The services sector gauge is projected to drop from the highs of 60.7 but to continue reflecting robust growth. 

In Germany, Factory Orders disappointed with a drop of 1% in November, worse than had been expected. The downfall was partially countered by a leap of 1.4% in retail sales in Europe's largest economy. 

Brexit returns to the headlines and may also have a slight impact on the Euro. The British media reports that Parliament will vote on the deal on January 15th. So far, there has been no movement from Brussels nor from hard-Brexiteers, and the odds of passing the deal seem low.

Have markets, and EUR/USD turned a corner on Powell? It is still hard to tell. The behavior of the world's most popular currency pair suggests caution and skepticism. Euro/dollar clings to the all-too-familiar ranges. Besides, markets have turned from a "buy the dip" mentality to a "sell the rally" one. The current upswing for both shares and euro/dollar may be temporary. 

EUR/USD Technical Analysis

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EUR/USD is trading in the familiar ranges. Momentum points to the downside, but the move above the 50 and 200 Simple Moving Averages on the four-hour chart is a bullish sign. The Relative Strength Index is balanced.

Some resistance awaits at 1.1440, the fresh daily high and a level that capped the pair in early December. 1.1485 was a peak in mid-December. 1.1500 is the high point seen in November. 1.1550 and 1.1620 are next.

Minor support awaits at 1.1410 which held EUR/USD down at the wake of the year. 1.1380 worked in both directions and is where we see the 200 SMA. 1.1345 was a swing low last week. 1.13010 and 1.1270 are next down the line.

Posted-In: China EUR/USDEarnings News Eurozone Forex Federal Reserve Markets

 

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