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23.06.202108:37 Forex Analysis & Reviews: EUR/USD. Jerome Powell did not become an ally of the US dollar

The US dollar slightly weakened after the results of yesterday's speech in Congress of Fed Chairman Jerome Powell, but it still retained its dominant position in the market. The US dollar index left the reached highs (92.30) last week, returning to the 91.00 mark. At the same time, the index did not move lower, namely to the levels where it was for several months before the Fed's June meeting. This suggests that traders still retain some interest in the US dollar, although the initial excitement around this currency has noticeably fallen.

Against this background, it should be noted that certain hopes were pinned on Jerome Powell. Several experts believe that he could give the USD a new impulse to resume the rally. If yesterday, the FRS head confirmed the "hawkish" intentions of the regulator and specified the plans of the Federal Reserve regarding the curtailment of QE, the US currency would strengthen its positions again throughout the market, putting an end to the correctional pullbacks of the major currency pairs. However, that didn't happen, which really disappointed the dollar bulls.

Exchange Rates 23.06.2021 analysis

Here, it should be recalled the main statements that were voiced by Powell at the press conference following the June meeting. In particular, we have the updated point forecast – according to which, 11 out of 18 members of the regulator favored a double rate hike in 2023. The Fed Chairman said that the median forecast should be treated with "a large degree of skepticism", given that they do not always come true. Attaching little importance to these predictions, Powell added that the pandemic still carries risks, albeit vaccination limits the spread of the coronavirus since new COVID-19 strains have emerged in the country. Moreover, the Fed Chairman quite vaguely commented on the fate of the stimulus program at the end of the June meeting. According to him, the members of the regulator want to see significant progress in the economy first and only then start discussing the issue of curtailing QE.

In other words, Powell's words were quite cautious at the final press conference. If the market evaluated the results of the June meeting only on the main theses of the head of the Federal Reserve, the US currency would definitely not rise on all fronts. However, the currency market does not tolerate the subjunctive mood, so the fact remains that traders focused their attention on the "hawkish" intentions of the Fed, despite the fact that we are talking about the planned events of 2023. It was for this reason that dollar bulls had pinned some hopes on Powell's speech in Congress. It was expected that he would warm up interest in the US currency by announcing the curtailment of QE, which should happen not in the distant 23rd year, but within the current year.

However, the Federal Reserve Chairman remained true to himself, voicing cautious and in some sense "dovish" rhetoric in front of congressmen. In particular, he said that the regulator intends primarily to motivate and encourage a broad and comprehensive recovery of the labor market. At the same time, he assured Congress that the Fed will not raise interest rates immediately, focusing only on inflation indicators. He repeated such words several times during his speech, the essence of which is reduced to a wait-and-see position. According to him, the Fed will not tighten the parameters of monetary policy only because of fear of inflation, since the inflation growth indicators are temporary and largely due to the low base of last year. Therefore, the regulator will wait for evidence of actual inflation or other imbalances.

Exchange Rates 23.06.2021 analysis

This position goes against the comments of some representatives of the Fed's hawkish wing. For example, Bullard called for an interest rate hike as early as next year, and Robert Kaplan said that there is a danger of acting too slowly. In addition, the head of the Federal Reserve Bank of Cleveland, Loretta Mester, suggested that low rates can lead to excessive price growth.

Nonetheless, the US dollar needed Jerome Powell's support to continue the dollar rally, but he failed to do it. In view of such events, EUR/USD buyers managed to organize a small upward correction, marking at the level of 1.1953 (lower border of the Kumo cloud on the daily chart). At this price point, the bullish factor faded and so, the bears took control again.

Apparently, the pair has outlined a new framework for a wide flat range, whose borders correspond to the levels of 1.1850-1.1950. On the wave of sellers' general strengthening, sellers of the EUR/USD could not break through the lower border of the range, after which the pair showed an upward correction. In turn, the corrective impulse amid yesterday's weakening of the US dollar faded at the upper border of the price range. Given Powell's soft position ECB's dovish position, it can be assumed that the pair will trade within the above range in the near future. Therefore, we can consider longs (with targets of 1.1900, 1.1950) when approaching the level of 1.1850. Sales, on the other hand, can be considered in the middle of the 1.18 mark when approaching the upper border of the range.

*这里的市场分析是为了增加您对市场的了解,而不是给出交易的指示。

Irina Manzenko,
Analytical expert of InstaForex
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