EURUSD Trend Reversal Stalls after Powell Remarks

EURUSD Trend Reversal Stalls After Powell Remarks
The EURUSD trend reversal stalled after Federal Reserve Chairman Jerome Powell made several remarks last week that indicated he doesn’t really understand inflation. Traders are readjusting their bets that the central bank will begin tapering its bond-buying program in March, which is likely to cause the dollar to weaken.

The US currency is now trading near its lowest level since January and a significant support level has been breached on the chart, currently standing at $1.3108. However, a strong bounce off the lows could have investors reevaluating their position in the pair and potentially buying at lower levels.

While the EURUSD has been under pressure, a dovish tone from the BoE and the US Dollar has provided a strong cushion for this pair, as they both are expected to raise interest rates in the coming weeks. This makes this pair a prime candidate to be in a tight squeeze for the next few months, until further fundamental events push them either higher or lower.

EURUSD Trend Reversal Stalls after Powell Remarks
The Federal Reserve chairman Jerome Powell drew a line in the sand during his press conference on Monday, making it clear that he isn’t ready to start tapering the Fed’s stimulus measures just yet. He said he doesn’t think inflation will rise as rapidly as many markets expect and suggested that the Fed will only hike interest rates further once it has a better sense of where inflation is headed.

This sentiment came after the release of US non-farm payrolls data, which showed a modest increase in jobs during February. The report also revealed that labor market indicators remained subdued, but not enough to suggest that the labor market is in for a major shock.

If the US labor market continues to weaken, this could trigger a shift in the Federal Reserve’s policy stance. This move could be the catalyst for a major USD sell-off and a reversal in the US dollar index, which has risen almost 50% this year, as traders seek safer havens.

But the Dollar isn’t out of the woods just yet, as a number of key economic reports will be released during this week. With a speech from Fed President William Dudley set for Wednesday and the latest employment data due Friday, we could see the Fed strike a more hawkish tone.

Moreover, we’ll see the UK Central Bank hold its monthly monetary policy meeting this Thursday and we can expect more dovish statements from BoE Governor Andrew Bailey. This paired with a lack of strong economic data in the United States could have the British Pound falling further.

The Euro has rallied against the dollar in the past two weeks, as a result of expectations that the European Central Bank would refrain from cutting its bond-buying program at its upcoming meeting on March 5. With no US economic data this week, the focus will be on the euro zone and Europe’s central bank for any action at all. If the ECB does not announce any changes at this week’s meeting, we should expect the euro to continue to gain ground against the dollar and the dollar may find its support around the long-term resistance trendline, currently standing at 1.0400

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