EUR/USD looks set to test 1.0700 ahead of Fed Powell’s testimony and US Employment

• EUR/USD is approaching 1.0700 as investors have shrugged off US recession fears.
• Federal Reserve’s Powell might wait for February’s data before delivering guidance on interest rates.
• European Central Bank’s Centeno sounds less hawkish despite renewed fears of high inflation in the Eurozone.
• EUR/USD is aiming higher amid a bullish momentum as the RSI (14) has shifted into the bullish range.

EUR/USD is an inch far from the round-level resistance of 1.0700 after a gradual move from 1.0680 in the Asian session. The major currency pair has been strengthened as investors’ risk appetite has improved. Investors have shrugged off recession risks associated with the United States economy due to higher rates from the Federal Reserve (Fed).

The US Dollar Index (DXY) looks vulnerable above the 104.20 support. The downside in the USD Index seems favored amid a decline in safe-haven’s appeal. S&P500 futures have added decent gains in the Asian session after Monday’s sideways auction, portraying positive market sentiment. An improved risk appetite has supported demand for US government bonds. This has resulted in a decline in the 10-year US Treasury yields to 3.96%.

The Euro has been provided significant bids as investors are expecting more rate hikes from the European Central Bank (ECB) amid renewed fears of higher inflation in Eurozone.

Fed Powell’s testimony to provide interest rate guidance

Resilience observed in the United States through January’s consumer spending indicated that the Federal Reserve will continue hiking rates. Achieving price stability is the foremost agenda of Federal Reserve chair Jerome Powell and for that more rates are highly required to tame sticky inflation. However, modest dovish commentary from Federal Reserve (Fed) Governor Christopher Waller has trimmed fears of hawkish guidance. Fed Waller cited February’s inflation recovery as a one-time blip and the price pressures will resume their downtrend from next month.

Meanwhile, analysts at MUFG said “They don’t expect Fed Chair Jerome Powell to endorse that scale of further tightening” when the Fed chief takes to Capitol Hill to deliver his semi-annual testimony before Congress.

Analysts further added that Fed Powell is more likely to “wait to assess further data in the coming months to see if the strength in activity and inflation is sustained before strongly committing to more rate hikes.”

US labor market to lay ground for further Fed moves

A power-pack action is expected from the US Dollar this week as investors will shift their focus to the Employment data after Federal Reserve Powell’s testimony. On Wednesday, the United States Automatic Data Processing (ADP) will report the Employment Change data. According to the estimates, the US economy has added fresh 195K payrolls in February, higher than the former release of 105K.

Later this week, the US Bureau of Labor Statistics will report the Nonfarm Payrolls (NFP) and the Unemployment Rate data. Apart from that, Labor cost index data will be in the spotlight as higher earnings will propel consumer spending ahead. This could force the Fed to stretch its restrictive policy measures further. And, the US Dollar bulls will be in the beast mode.

European Central Bank’s Centeno sounds contrary to renewed inflation fears

Less-than-anticipated fall in the Eurozone’s Harmonized Index of Consumer Prices (HICP) and standalone recovery in German, Spain, and France inflation have renewed the risk of inflationary pressures. It seems that the impact of lower energy prices is fading away and Eurozone could fall into an inflation spiral ahead.

Citing inflation as ‘too high’, European Central Bank President Christine Lagarde has already announced that the central bank will push rates further by 50 bps in its March monetary policy meeting. However, ECB policymaker Mario Centeno looks a little diverged from the provided plan. When asked about a possible 50 basis points (bps) rate hike in March, European Central Bank (ECB) policymaker Centeno said that “the decision must be based on data.” Adding that the “interest rates have risen too fast.”

EUR/USD technical outlook

EUR/USD is marching towards the supply zone placed in a range of 1.0698-1.0705 on an hourly scale. The major currency pair is expected to recapture the same considering the strength in the upside momentum.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 1.0674 and 1.0654 respectively, add to the upside filters.

The Relative Strength Index (RSI) (14) is oscillating in the bullish range of 60.00-80.00, which indicates that the upside momentum is already active.