EUR/USD dives on speculations for additional hikes after Fed Chair Powell remarks

• EUR/USD tumbles to 1.0917, down 0.40%, after hawkish remarks by Fed Chair Jerome Powell and ECB's President Christine Lagarde.
• Both policymakers’ commitment to bringing inflation down saw the greenback outperform the euro, with the EUR/USD falling to a daily low of 1.0896.
• Powell’s remarks boosted the US dollar, pushing the US Dollar Index up 0.45% to 102.970, as market expectations for a 25 bps rate hike in July increased to 84.3%.

EUR/USD snaps two days of straight gains drop on hawkish remarks by the US Federal Reserve (Fed) Chair Jerome Powell, who shared a panel with the European Central Bank (ECB) President Christine Lagarde. Even though both policymakers struck hawkish remarks, the greenback finished with the upper hand. At the time of writing, the EUR/USD is trading at 1.0917, down 0.40%, after hitting a weekly high of 1.0976 on Tuesday.

Hawkish comments by Fed Chair Powell and ECB President Lagarde drive the greenback higher, leading to a drop in EUR/USD

Wall Street is trading mixed, with the Dow Jones being the outlier, registering losses of 0.15%. Fed Chair Powell and ECB’s Lagarde shared a panel on Wednesday where policymakers talked about monetary policy. The ECB President Christine Lagarde said there is ground to cover, and if the baseline scenario stands, the European Central Bank will pull the trigger in July. She added that core inflation was not dropping as expected and did not comment on the September meeting.

At the same time, Fed Chair Powell said that policy “has not been restrictive for long,” emphasizing that most of the dot plot still sees two more increases. He added, “US economy is quite resilient and latest data consistent with that” and added the Fed needs to see more softening in the labor market.

Albeit both policymakers remain committed to bringing inflation down, Lagarde’s failure to commit to an additional hike in September hurt the Euro (EUR), as seen by the EUR/USD pair falling toward the daily low beneath the 1.0900 figure, at 1.0896 before recovering some ground.

Nevertheless, Powell’s comments boosted the greenback, as the US Dollar Index climbs 0.45%, at 102.970 shy of piercing the 103.000 marl. Meanwhile, expectations for a 25 bps rate hike in July jumped, as shown by the CME FedWatch Tool, with odds at 84.3%, above June’s 27 76.9%.

In recent data, the US Trade deficit contracted by 6.1% to $-91.1 billion, vs. April’s $-97.1 billion, as shown by the US Department of Commerce. Sources cited by Reuters commented, “Even with the narrowing in May, the goods trade deficit is up by over 10% since March, and trade will likely be a drag on economic growth in the second quarter.”

Regarding the Eurozone data, the German GfK Consumer Sentiment showed consumer confidence is foreseen to fall to -25.4 in July, from a downward revised -24.4 in June. The report noted that elevated prices are eroding the households purchasing power. Also, consumers are spending less due to declining economic and income expectations.

Upcoming events

In the Eurozone area, the docket will feature inflation data in Germany and Spain. The latter will also reveal the business confidence poll. Across the pond, the US economic agenda will disclose Initial Jobless Claims, GDP data, housing data, and a slew of Federal Reserve speakers.

EUR/USD Price Analysis: Technical outlook

From a technical perspective, the EUR/USD remains neutrally biased but slightly tilted to the downside as the current EUR/USD trading session continues to edge lower. If EUR/USD achieves a daily close below the June 27 open of 1.0905, a bearish-engulfing candle pattern emerges, suggesting that further downside is expected. If that scenario happens, the EUR/USD next support would be the 20-day Exponential Moving Average (EMA)  at 1.084, followed by the 50-day EMA at 1.0851 and the 1.0800 mark. On the flip side, the EUR/USD first resistance would be the weekly high of 1.0976, followed by the psychological 1.1000 mark.