The EUR/USD pair remained steady around 1.0715 despite the US Federal Reserve's announcement and comments from Fed Chair Jerome Powell.
- According to the economic calendar data, the Federal Reserve kept the target range for the federal funds rate unchanged at 5.25%-5.50% at its May meeting for the sixth time in a row, as ongoing inflationary pressures.
- Also, a tight Labor market suggest that progress towards returning inflation to its natural level of the 2% target this year has stalled.
- Policymakers acknowledged that while inflation has moderated over the past year, it remains high, and there has been a notable lack of further progress towards achieving the Fed's target in recent months.
However, Fed Chair Jerome Powell said he does not expect a potential hike and believes the current policy is restrictive enough to achieve the 2% inflation target. At the same time, the Fed also announced its intention to slow down its quantitative tightening starting June 1, an adjustment that will involve reducing the maximum number of Treasuries being removed from the balance sheet by more than 50%, down to $25 billion per month from the previous balance sheet.
Overall, Powell has expressed a note of optimism about inflation. Despite recent setbacks, he said, "My expectation is that over this year, we will see inflation come down again." Initially, Wall Street traders were cheered by the possibility of the Fed cutting rates at some point this year, and by Powell's comment that the Fed is not considering going back to rate hikes to tackle inflation. He added: "I think it's unlikely that the next rate move is a rate hike."
However, later, US stock prices erased their gains and ended the day little changed from before Powell's press conference. However, Powell outlined a range of possible scenarios for the coming months. He said that if employment remains strong and "inflation moves sideways," it "would be a situation where it would be appropriate to postpone rate cuts."
On the other hand, in the European Union, preliminary GDP for Q1 beat the expected change (on a quarterly basis) by 0.1%, recording a change of 0.3%. Also, the (year-on-year) equivalent beat estimates of 0.2%, with a change of 0.4%. The preliminary HICP for the period matched the expected change (year-on-year) of 2.4%. The preliminary core HICP for the euro area for the period beat the expected change (year-on-year) of 2.6% with a change of 2.7%.
EUR/USD Technical analysis and forecast:
The price of the EUR/USD currency pair has now advanced to trade near the 100-hour moving average line. As a result, the pair rebounded to avoid falling to the oversold levels of the RSI 14-hour frame. In the near term, and according to the performance on the hourly chart, it appears that the EUR/USD currency pair is trading within a descending channel formation. However, the RSI rebounded on the 14-hour frame to avoid falling into oversold levels. Therefore, the bulls will target extended bounces at around 1.0720 or higher at 1.0745. On the other hand, the bears will look to extend declines towards 1.0652 or lower to 1.0620 support.
In the long term, and according to the performance on the daily chart, the EUR/USD currency pair is trading within a descending channel. Similarly, the 4-day RSI appears to have rebounded recently to avoid entering oversold conditions. Therefore, the bulls will target the long-term highs at around 1.0765 or higher at the 1.0870 resistance. Conversely, the bears will target long-term profits at around 1.0595 or lower at the 1.0460 support.
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