EUR/USD has room to recover, but it all depends on the all-powerful Powell

EUR/USD has tumbled below 1.18 after high US inflation figures and a soft bond auction. Next stop, 1.17? Fed Chair Powell's testimony is critical to the next moves, Yohay Elam, an Analyst at FXStreet, briefs.

Powerful Powell holds the keys to next moves

“The Fed Chair could still knock the greenback down by insisting that price rises are transitory. On the other hand, Powell could return to his relatively hawkish stance in June, when he opened the door to the chance that inflation is here to stay if he sees the data differently.”

“The Fed Chair's focus is on employment and inflation, but he will likely speak about the broader economy impacted by the reopening – and risks to that revival. The Delta covid variant is spreading in some parts of the US, with infections double the low levels they hit two weeks ago. If he flags that as a risk that could delay tapering, the greenback could fall.”

“After the dust settles in the US, the focus could shift back to Europe's Delta wave – hurting the Netherlands, Spain and Portugal more than others–  but spreading also in Germany and France. Eventually, it could weigh on the euro while the dollar could benefit from safe-haven flows. However, that is for another day, after the Powell effect fades.”

“Support awaits at the new multi-month low of 1.1772, followed by 1.1740 and then 1.17 – levels last seen early in the spring.” 

“Some resistance is at 1.1810, which was a low point in June. It is followed by 1.1825, which was a swing low early in July, and then by 1.1885.”