EUR/USD Forecast: Bears Hold the Grip Despite Powell's Conservative Tone

EUR/USD Current price: 1.1599

• US Federal Reserve announced tapering as expected, remained cautious.
• US macroeconomic data came in much better than expected, maintaining the greenback afloat.
• EUR/USD is still in a bearish path and could break lower towards fresh 2021 lows.

The EUR/USD pair is up after the US Federal Reserve failed to impress market participants, although confined to familiar levels. The US central bank kept interest rates unchanged as expected, and announced the reduction of its asset purchases by $15 billion per month. The Fed will begin taper later this month with reductions in Treasuries purchases by $10 bln, and mortgage-backed securities by $5 bln.

The announcement was already priced in. Even further, policymakers still think inflation will be “transitory” although Powell noted that supply chain issues will likely extend well into next year, which means inflation will also remain high. Utterly patient stance with inflation above 2%. Among other things, he also said that he would not want to surprise markets by changing the taper strategy, opposite to the statement that noted that they can adjust the strategy as needed. His conservative stance put some pressure on the greenback while providing a boost to Wall Street, with the three major indexes reaching record highs.

Ahead of the Fed, the EU published the September Unemployment Rate, which printed at 7.4% as expected. On the other hand, the US published upbeat employment-related figures, as the ADP survey showed that the private sector added 571K new jobs in October, much better than the 400K expected. The country also published the October ISM Services PMI  which improved to 66.7 from the previous 61.9, beating expectations. Finally, Factory Orders in September rose 0.2% MoM vs the -0.1% expected.

On Thursday, Germany will publish September Factory Orders, while Markit will unveil the final readings of October Services PMIs. The US will release weekly unemployment claims and other relevant employment-related figures ahead of the Nonfarm Payrolls report on Friday.

EUR/USD short-term technical outlook

The EUR/USD pair trades around the 1.1600 level, marginally higher on the daily basis. It reached a daily high of 1.1615, a Fibonacci resistance level, but was unable to break above it with Powell’s words.

The technical picture has made little progress, as the daily chart shows that the pair keeps seesawing around a flat 20 SMA, while technical indicators lack directional strength within neutral levels. The longer moving averages maintain their bearish slopes, extending their declines well above the current level, indicating firm selling interest.

The 4-hour chart shows that the pair hovers between its 20 and 100 SMAs, while the 200 SMA heads lower above them. Technical indicators ticked higher within positive levels, but without strength enough to suggest another leg north. AS usual, the pair needs to clear 1.1670 to gain bullish traction, while bears could take over on a break below 1.1520.

Support levels: 1.1520 1.1470 1.1430

Resistance levels: 1.1615 1.1670 1.1710