Daily analysis

Powell’s Rhetoric Fails To Support U.S. Dollar

Since late November, the euro has been trading within a wide channel, approaching its upper boundary more often. The price was then expected to decline towards the lower boundary, but instead, it got stuck at the top of the channel.

This happened after Jerome Powell’s speech at the Senate hearing. The Fed Chair reiterated that the regulator was determined to raise the funds rate at least twice this year to tackle the highest inflation rate in the past 40 years. If necessary, the Fed is ready to raise the rate three times in 2022.

This was rather aggressive rhetoric for the market, which was supposed to strengthen the US dollar. However, there was much speculation over the past few days predicting that the regulator will consider four rate hikes this year.

Yet, the Fed officials have never confirmed these views. In other words, this was mere speculation. So, market participants anticipated that Jerome Powell’s stance would become even more hawkish. In the light of such expectations, his actual statement looked far less aggressive. That is why the US dollar began to depreciate.

Today, markets are looking forward to critical macroeconomic data in the US. But before this, they will evaluate the data on industrial production in the Eurozone. Notably, traders have been downplaying any statistics from Europe since Friday. Therefore, a slowdown in industrial production to 0.8% from 3.3% will hardly influence the market sentiment.

Eurozone industrial production.
Eurozone industrial production.

Meanwhile, the data on the inflation rate in the US is likely to move the markets. Consumer prices are projected to accelerate to 7.1% from 6.8%, a good driver for the US dollar. As Jerome Powell has clarified all the questions regarding rate hikes, the only question is when the process will start.

A further rise in consumer prices may indicate that the first round of rate hikes will occur at the Fed’s next meeting in January. These assumptions are already enough to support the US currency.

US CPI.
US CPI.

The EUR/USD pair is holding near the upper boundary of the sideways channel. The price has not yet touched the key level of 1.1400. This may point to a possible decline in the volume of long positions.

The RSI is moving in the upper zone of the indicator on the H4 time frame, thus confirming the prevailing bullish sentiment in the market.

Notably, the price has not crossed the critical zones of the RSI indicator on H4 (30/70) for more than 6 weeks, which indicates a flat movement.

On the daily chart, the bearish rectangle pattern has been formed, confirming the extension of the downward movement.

Outlook And Forecast

Signals on both medium- and long-term periods favor purchases of the US dollar. Yet, in the short term, sellers rule the market. So, traders are currently focused on the boundaries of the flat channel. The strategy based on a rebound towards 1.1300–1.1270 is still relevant.
Trading on a breakout of the upper line of the range will become relevant as soon as the price settles above the level of 1.1400 on the daily time frame.

Comprehensive indicator analysis shows a buy signal on the short-term and intraday charts as the pair has been trading near the upper boundary of the flat channel.

EUR/USD 4-hour chart.

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