EUR/USD Recovers as Chair Powell Remains Willing to Adjust Policy

US Dollar Outlook: EUR/USD

EUR/USD retraces the decline from the start of the week as Federal Reserve Chairman Jerome Powell reiterates that ‘we do not need to be in a hurry to adjust our policy stance’ while testifying in front of Congress.

EUR/USD Recovers as Chair Powell Remains Willing to Adjust Policy

EUR/USD trades to a fresh weekly high (1.0344) as Chairman Powell tells US lawmakers that ‘we will adjust our policy stance in a manner that best promotes our maximum-employment and price-stability goals,’ and it seems as though the Federal Open Market Committee (FOMC) will continue to pursue a less restrictive policy as the central bank remains ‘committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored.’

Join David Song for the Weekly Fundamental Market Outlook webinar.

In turn, the US Dollar may face headwinds ahead of the next Fed meeting in March as the Fed appears to be on track to implement lower US interest rates in 2025, and the update to the Consumer Price Index (CPI) may keep EUR/USD afloat as the report is anticipated to easing inflation.

US Economic Calendar

Even though the headline CPI is anticipated to hold steady at 2.9% in January, the core rate is expected to narrow to 3.1% from 3.2% per annum the month prior, and signs of slowing inflation may drag on the Greenback as it encourages the Fed to further unwind its restrictive policy.

However, a higher-than-expected CPI print may keep the FOMC on the sidelines as the US economy shows little signs of a recession, and evidence of persistent price growth may generate a bullish reaction in the US Dollar as it puts pressure on the Fed to keep interest rates on hold.

With that said, the rebound in EUR/USD may turn out to be temporary as the Fed follows a data- dependent approach in managing monetary policy, but the exchange rate may stage a larger rebound over the coming days as it bounces back ahead of the monthly low (1.0211).

EUR/USD Chart – Daily

Chart Prepared by David Song, Senior Strategist; EUR/USD on TradingView

EUR/USD extends the rebound from the weekly low (1.0286) to halt a three-day selloff, with a move above 1.0370 (38.2% Fibonacci extension) bringing the monthly high (1.0443) on the radar.
A break/close above the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone may push EUR/USD towards the January high (1.0533), but lack of momentum to push above 1.0370 (38.2% Fibonacci extension) may keep the exchange rate within the opening range for February.
At the same time, failure to defend the monthly low (1.0211) may lead to a test of the January low (1.0178), with a close below 1.0200 (23.6% Fibonacci retracement) raising the scope for a move towards parity.

Additional Market Outlooks

USD/JPY Rebound Keeps RSI Above Oversold Zone Ahead of Fed Testimony

Canadian Dollar Forecast: USD/CAD Remains Susceptible to Trump Tariffs

GBP/USD Vulnerable amid Failure to Close Above 50-Day SMA

AUD/USD Recovery Stalls Ahead of January High

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.