The recent rebound in EUR/USD unravels as Federal Reserve Chairman Jerome Powell strikes a hawkish outlook for monetary policy, and the failed attempt to test the July-high (1.1791) keeps the broader outlook tilted to the downside as the central bank appears to be on course to implement higher borrowing-costs over the coming months.
Even though President Donald Trump disapproves of the strength in the U.S. dollar, recent remarks from Chairman Powell suggests the that only signs of a recession would deter the central bank from raising the Fed Fund rate closer to neutral, and the Federal Open Market Committee (FOMC) may continue to carry out its hiking-cycle over the coming months as the U.S. economy is in ‘good place.’
In contrast, the European Central Bank (ECB) may stick to the current script at the next meeting on July 26 as the quantitative easing (QE) program is now set to expire in December, and more of the same from President Mario Draghi and Co. may drag on the Euro as the Governing Council keeps the door open to further support the monetary union.
In turn, EUR/USD may continue to consolidate over the coming days, with the June-low (1.1508) on the radar as the monthly opening range snaps. Keep in mind, the Relative Strength Index (RSI) has already flashed a bearish signal as it failed to retain the upward trend from the previous month, with the broader outlook for the euro-dollar exchange rate tilted to the downside as the Fed appears to be on track to implement four rate-hikes in 2018. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!
EUR/USD Daily Chart
Lack of momentum to test the July-high (1.1791) may generate fresh monthly lows in EUR/USD, with the 1.1510 (38.2% expansion) region back on the radar as it offers near-term support and lines up with the June-low (1.1508). Need a break below the stated region to open up the downside targets, with the first region of interest coming in around 1.1390 (61.8% retracement) to 1.1400 (50% expansion) followed by the 1.1290 (61.8% expansion) hurdle.
For more in-depth analysis, check out the Q3 Forecast for the Euro
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--- Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.