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EUR/USD Neutral Ahead Of Fed Speech Expected To Address 0.8% Consumer Price Drop

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  • Fed expected to react to April’s 0.8% consumer price drop in upcoming announcement.
  • S dollar restricted below 3-week high.
  • Fed faces pressure to embrace negative interest rates.

The EUR/USD currency pair lacked direction on Wednesday morning as traders adopt caution due to uncertainties regarding the Federal Reserve’s upcoming speech. Analysts expect the speech which will be delivered by Fed Chairman, Jerome Powell, to address April’s 0.8% drop in consumer prices due to COVID-19’s impact. The speech is highly anticipated because it will likely reveal the Fed’s plan of action to counter the declining consumer prices in hopes of reversing the ongoing recession.

The EUR/USD currency pair demonstrated a lack of bullish or bearish momentum on Wednesday morning, with the price stuck in limbo at around the 1.0850 range. Technical analysis expects the price to cross the 1.0865 level if it gains bullish momentum and below 1.0825 if it goes bearish. Key resistance levels during the session are expected at 1.0885, 1.0905, 1.0935, and 1.0981 while there will likely be support at 1.0805, 1.0791, 1.0755, and 1.0715.

EUR/USD outlook

The EUR/USD will likely experience significant volatility depending on the outcome of the upcoming Federal Reserve chairman’s speech. The Fed is currently under a lot of pressure even from POTUS to switch to negative rates, especially after the concerning consumer prices in April. The 0.8% drop was the largest decline in consumer prices that has been experienced in the U.S since the Great Recession, thus calling more Federal Reserve intervention.

Negative interest rates might be detrimental to the U.S dollar’s performance, and while it seems like an unlikely direction for the Fed, it is not a farfetched one, especially at this point. The Fed will likely consider going that direction as a last resort, but for now, it will likely experiment with other avenues. The coronavirus is still a major threat to the U.S economy and the global economy at large, and thus the concerns about the ongoing infection rates might lead to further economic decline.

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