The EURUSD has been trying to recover since Tuesday after falling to a more than two-month low below $1.19 on Monday following the Fed's change in tone last week. The euro took advantage of a dovish tone from Jerome Powell yesterday before a House of Representatives subcommittee to continue its rebound and climb back to $1.1950.
For forex traders, as recovery takes hold on both sides of the Atlantic after the crisis caused by the Covid-19 pandemic, the question is which central bank will normalize its monetary policy first, making its currency more attractive.
The Fed chairman yesterday stressed that the central bank would not raise interest rates too quickly out of fear of future inflation and that the central bank would keep its eyes on a broad set of labor market statistics.
As a result of these comments, the probability of at least one Fed rate hike by July 2022 decreased from 35% to 30%.
As Jerome Powell has reiterated on multiple occasions, the Fed's monetary policy will depend heavily on the recovery of the labor market. Therefore, the upcoming monthly jobs report released on Friday, July 2 should be particularly important for the markets. A better than expected reading would be an argument for faster monetary policy normalization and vice versa.
Between now and the release of this report, market participants should be sensitive to the flash PMI releases for June this Wednesday.
In terms of technical analysis, the outlook for the EURUSD is once again bullish in the short term as the exchange rate has formed an “inverted head and shoulders” reversal pattern by breaking above its resistance at $1.1922, paving the way for a continued rebound to $1.20.
(Chart Source: Tradingview 23.06.2021)
This short-term bullish outlook would be technically invalidated if the “flag” in which the EURUSD has been moving since the beginning of the week were to break out from below. A breakout from the bottom of the flag would pave the way for a new leg down and a return to the April low of $1.1710.
Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.