EUR/USD Forex Forecast – Sellers Targeting 1.0381 after Powell Flags Higher Terminal Rate

The Euro is trading sharply lower against the U.S. Dollar on Tuesday after Federal Reserve Chair Jerome Powell said the U.S. central bank is likely to raise rates more than expected and warned that the process of getting inflation back to 2% has “a long way to go.”

At 19:00 GMT, the EUR/USD is trading at 1.0552, down 0.0131 or -1.23%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $97.35, down $1.15 or -1.17%.

Powell told U.S. lawmakers on Tuesday that the Fed is also prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control price increases.

Fed funds futures are now pricing in a roughly 60% probability that the Fed will hike rates by 50 basis points at its March 21-22 meeting. The possibility had been seen at around 22% earlier on Tuesday.

Investors will closely watch the Fed’s updated “dot plot” of rate expectations at March’s meeting for further indications of how high Fed officials expect to raise rates.

Fed officials in December had forecast that rates would increase to between 5.00% and 5.25% this year. Traders are now pricing for the rate to peak at 5.64% in September.

Daily EUR/USD Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0533 will signal a resumption of the downtrend. A move through 1.1033 will change the main trend to up.

The minor trend is also down. A trade through 1.0695 will change the minor trend to up. This will shift momentum to the upside.

The nearest resistance is a minor pivot at 1.0614, followed by a longer-term 50% level at 1.0661. The closest support is the January 6 main bottom at 1.0483, followed by the long-term 50% level at 1.0381.

Daily EUR/USD Technical Forecast

Trader reaction to 1.0614 is likely to determine the direction of the EUR/USD into the close on Tuesday.

Bearish Scenario

A sustained move under 1.0614 will indicate the selling pressure is getting stronger. This could create the downside momentum needed to challenge the main bottom at 1.0533, followed by 1.0483.

Bullish Scenario

A sustained move over 1.0614 will signal the presence of counter-trend buyers. This could fuel a late session surge into a pair of 50% levels at 1.0614 and 1.0661.