The U.S. dollar continues to be subdued by persisting downside pressures, a trend that was exacerbated by Jerome Powell's recent comments at the Jackson Hole Symposium. Check out our comprehensive analysis of the GBPUSD to get a better sense of the broader market sentiment.
At his highly anticipated speech, FED Chair Jerome Powell suggested that the bank remains adamantly opposed to the notion of lifting the monetary policy at the present rate. His comments did not live up to the prevailing market expectations before the event for a hint towards a potential FED tapering by early 2021.
Powell's speech at the Jackson Hole Symposium exacerbated the bearish pressures on the greenback in the short term.
As can be seen on the daily chart above, the dollar weakens against the euro following a resurgence in bullish momentum. This is elucidated by the MACD indicator.
The price action rebounded from the previous swing low at 1.17150, leaving a false breakdown below it, and went on to penetrate above the upper boundary of the descending channel.
Presently, the price of the EURUSD pair is probing the 23.6 per cent Fibonacci retracement level at 1.18063, which is converging with the 50-day MA (in green). This represents the first major test for the reinvigorated bullish bias.
If the price action manages to break out above the two, its next most likely direction would be the 38.2 per cent Fibonacci at 1.18948. The latter already served as a major turning point.
Conversely, a potential failed breakout above the first Fibonacci threshold could then likely be followed by another dropdown to 1.17150.
The biggest reason why the dollar depreciated following Jerome Powell's speech was his stance on inflation.
The Chairman of the Federal Reserve observed the high inflation in the U.S., which he once again attributed to short term fluctuations. Primarily, global supply bottlenecks continue to represent a major logistical problem, driving consumer prices up.
However, he cautioned against early policy interventions, which could offset the underlying recovery, citing FED's past experiences with previous recessions:
"The period from 1950 through the early 1980s provides two important lessons for managing the risks and uncertainties we face today. The early days of stabilization policy in the 1950s taught monetary policymakers not to attempt to offset what are likely to be temporary fluctuations in inflation."