• Powell noted that recent inflation figures had increased confidence that price pressures were declining.

• Markets are fully pricing in a Fed rate cut in September.

• Investors are preparing for the ECB policy meeting on Thursday.

The EUR/USD outlook paints a bullish picture, with the dollar weak after Powell’s dovish comments. Meanwhile, investors are gearing up for the US retail sales report later in the day. Furthermore, anticipation is building ahead of Thursday’s European Central Bank policy meeting.

On Monday, Powell noted that recent inflation figures had increased confidence that price pressures were declining in a sustainable way. Consequently, inflation could soon reach the central bank’s 2% target. More confidence among policymakers paves the way for rate cuts. As a result, after Powell’s comments, markets are fully pricing in a rate cut in September. Moreover, investors expect the Fed to cut by 68 basis points this year.

However, this outlook might change as more data comes in since there is still a long way to go before September. Investors will focus on the US retail sales report, which might show a 0.3% monthly decline. Weaker sales would point to declining consumer spending, strengthening the case for rate cuts.

Meanwhile, investors are preparing for the ECB policy meeting on Thursday, where the central bank will likely hold rates. However, traders will focus on Christine Lagarde’s comments for clues on future rate cuts. Since the last meeting, inflation has eased. However, policymakers are concerned about services inflation which remains high. Last week, a Reuters poll revealed that the ECB might cut rates in September and December. However, there is a chance the central bank will cut once.

EUR/USD key events today

• US core retail sales m/m
• US retail sales m/m

EUR/USD technical outlook: Bearish RSI divergence

On the technical side, the EUR/USD price has paused near the 1.0900 key resistance level after a robust bullish surge. The 30-SMA trades well below the price, showing a bullish trend. At the same time, the RSI is in bullish territory above 50.

However, as the price made higher highs near 1.0900, the RSI made lower highs, indicating a bearish divergence. If the divergence plays out, the price will likely pull back to retest the 30-SMA or lower. A break below the SMA would confirm a shift in sentiment. However, if bulls remain in control, the price could reach 1.0950.

https://www.forexcrunch.com/blog/2024/07/16/eur-usd-outlook-dollar-dips-as-powell-strikes-dovish-tone/