June 22, 2021 14:24:06

Tepid EUR/USD bounce so far

The world’s most popular pair has been breaking down through big figures and key support over the past few sessions as the hawkish Fed twist rumbles on. Huge position adjustment and a short squeeze in the greenback has left the pair trading well beyond the lower Keltner channel. The previous recent times when EUR/USD has traded through the lower band have seen a notable rebound, so price action today looks important for near-term direction. With the RSI below 28 at one point on Friday, a retracement seems inevitable and natural to ease the oversold conditions.

Chair Powell is speaking later today but whether he can say anything more hawkish to add to the mix is debatable. Other Fed speakers are on the wires adding their take on the “dots” and taper talk. Anything mildly dovish will be seized upon by buyers and see spot heading towards the first Fib level at 1.950 before the 200-day SMA around 1.20. There is a cluster of other resistance as well above here with the 50% retrace level and 100-day SMA.

We do get important eurozone data in the form of PMIs out tomorrow which will be checked for any souring of sentiment. Many analysts are convinced the longer-term direction of travel now appears to be towards the March low at 1.17 unless Powell rows back on current market sentiment.

Meanwhile, the ECB will be fairly content with this period of dollar strength. As the central bank divergence grows, some heavy lifting for the ECB will get done with financing conditions potentially kept loose through the summer. Indeed, recent comments by the ECB continued to sound cautious with President Lagarde only yesterday striking dovish tones again by stressing that rising market rates still pose a risk to the recovery, even mentioning rate cuts as a possibility.