- EUR/USD has flipped the 50-day Simple Moving Average (SMA) hurdle into support.
- Fed’s Powell is likely to reiterate bias for easy monetary policy.
- ECB’s Lagarde said Monday that the bank is closely monitoring the rise in government bond yields.
EUR/USD advanced to four-week highs in Asia but is struggling to keep the bullish momentum going, with investors turning cautious ahead of the Federal Reserve (Fed) Chairman Jerome Powell’s appearance before Congress later Tuesday.
The pair rose to 1.2177, the highest level since Jan. 25, and is currently trading at 1.2166, representing a 0.11% gain on the day.
While the 50-day Simple Moving Average (SMA), which recently capped gains, has been scaled, the breakout’s sustainability looks contingent on what Powell says about the rising Treasury yields and stock market valuations.
The 10-year yield has risen to a 12-month high of 1.39% on Monday, taking the year-to-date gain to over 35 basis points. While the bond market looks to be pricing an early Fed tightening, BK Asset Management’s Kathy Lien says the talk of taper is premature.
“We expect Powell to downplay the increase in prices and reiterate that accommodative monetary policy is needed for the foreseeable future,” BK Asset Management’s Kathy Lien noted in her daily market analysis.
Dovish comments could invite stronger selling pressure for the dollar, helping EUR/USD establish a foothold above the 50-day SMA. Meanwhile, risk aversion would grip markets if Powell expresses concerns about the stock market valuations, sending EUR/USD lower.
Aside from Powell’s testimony, the Eurozone Consumer Price Index for January, due at 10:00 GMT, could influence the pair. Also, Germany’s slow vaccine delivery and comments by the European Central Bank head Christine Lagarde may hamper the pair’s progress on the higher side.
“Compared to US and UK, vaccine rollout in the Eurozone has been painstakingly slow. Germany, the largest economy in the Eurozone, has vaccinated only 4% of its population. The vaccination rate in France, Spain, and Italy are slightly lower,” Lien noted. Lagarde said on Monday that the central bank is is “closely monitoring” nominal government bond yields in a sign of policymakers becoming uncomfortable with the recent surge in yields.