The EUR/USD pair reached a monthly high of 1.2553 on February, 16th. After this, the pair started declining reaching a low of 1.2257. The monthly low for the pair was 1.2204.
The sudden drop in the pair was as a result of the fears that inflation was returning. To traders, inflation is probably one of the most important thing because it plays a major role in interest rates decision.
As a reminder, central bankers follow what is known as the Phillip’s Curve when making these decisions. This is a simple concept that suggests that wages tend to rise as the unemployment rate falls, which pushes the rate of inflation higher. We are in that place in the United States where the unemployment rate is at a 17-year low while the wages are growing marginally. Inflation too is rising.
Today, traders are looking forward to the statement from the new Fed chair, Jerome Powell who will testify before a congressional committee. Tomorrow, he will testify before the senate.
In today’s testimony, he is likely to have an assuring tone for the state of the economy. He is also likely to stick to the talking points of the former Fed chair, Janet Yellen. Possibly, he will neither be dovish or hawkish.
Before the statement, the EUR/USD pair is likely to have some sideways movements as traders anticipate what he will say.
The first likely scenario is that his statement will be supportive for the dollar. If this happens, the EUR/USD pair may to continue moving lower, and may test the monthly low of 1.2204.
The alternative scenario, the pair may potentially reach the resistance level of 1.2171.