EURUSD appears to be bottoming out following a moderate dropdown over the past couple of weeks. Even though the broader sentiment of the pair is still mostly bearish, these developments could initiate a potential pullback. Check out our newest analysis of the pair to get a better understanding of the current market sentiment.
EURUSD rallies in the hours following the testimony as Powell pummels the dollar. He said that the FED would continue its purchases of treasury bills at an elevated pace until longer-term inflation converges around the symmetric 2.0 per cent target level.
The last dropdown appears to be bottoming out in the form of a Cup and Handle pattern, which is typically taken to signify likely bullish reversals. This can be seen on the hourly chart above.
Notice that the Handle appears as a false reversal from the 61.8 per cent Fibonacci retracement level at 1.18394. However, following the subsequent decisive breakout above it, the prevalence of bullish bias in the short term was confirmed.
The EURUSD rallies, for the time being, driven by the dollar weakness, and its next most probable target can be found at the last swing high. That is the major resistance level at 1.18800.
Jerome Powell's remarks revealed FED's determination to maintain its accommodative policy stance for as long as it is needed to stimulate growth. This is despite the recent statement that a rate hike can be expected in 2023.
Despite the recent upsurge in headline inflation, Powell remains confident that prices rise on persisting supply bottlenecks. These continue to be caused by pandemic ripples.
"[..] strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind."
That is why the FED is not tightening its stance at the present moment, despite upbeat economic data and short term inflation exceeding FED's goals more than two times.