EUR/USD: Could Fed Chairman Powell Be the Trigger for a New Round of Dollar Gains?

EUR/USD held steady above 1.0800, stuck in a limited trading range, as investors avoided taking big positions ahead of Federal Reserve Chairman Jerome Powell’s testimony before Congress.

Comments from Fed Chairman Powell on his assessment and outlook for the US economy in the first half of the year will be eagerly awaited.

EUR/USD exchange rate movement remains inextricably tied to bets on rate cuts from the Fed and the ECB.

Possible comments from the Fed Chairman will change these bets, which is expected to affect the exchange rate and volatility will increase significantly.

If Powell does not deliver any major surprises, the overall market situation is expected to remain flat and the exchange rate will struggle to find direction. Although EUR/USD has risen recently, I still doubt that this reaction can last for long.

As the ECB will cut interest rates twice more and the Fed will only cut the key rate once, the interest rate differential is clearly in favor of the US dollar and there is still a possibility that the interest rate differential will widen.

On the other hand, any worrying message from the Fed Chairman, coupled with the expectation that US data on Thursday will unexpectedly reduce inflationary pressures, will call the US dollar into question and EUR/USD will challenge 1.0900.

If my thoughts do not change, I will continue to stay on the sidelines and look for levels around 1,06 to buy EUR or the corresponding level around 1,10 to buy USD.

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