EUR/USD Update: Bearish Bias Takes Over the Market After Powell’s Speech

Market Overview

The euro has faced significant challenges in the short term, particularly following the recent Federal Reserve's monetary policy decision. The EUR/USD currency pair has shown renewed weakness, declining over 0.8% on the day, which has shifted the market's focus back to a bearish bias.

Federal Reserve's Decision

On the day of the announcement, the Federal Reserve decided to keep interest rates unchanged at 3.75%, aligning with market expectations. Jerome Powell's subsequent speech emphasized that inflation remains above the Fed's 2.00% target, citing potential inflationary pressures from rising oil prices and geopolitical uncertainties in the Middle East.

Powell's cautious tone indicated that rate cuts are not imminent, leading to a shift in market expectations regarding future rate adjustments. Prior to his remarks, markets anticipated rate cuts to commence around December 2026, but this outlook has now changed, with a higher likelihood of rates remaining stable until at least March 2027.

Impact on the U.S. Dollar

This shift in expectations has bolstered the U.S. dollar, as evidenced by the rise in the 10-year Treasury yield, which approached 4.3%. The U.S. Dollar Index (DXY), which measures the dollar's strength against a basket of major currencies, has regained the 100 level, indicating renewed buying pressure.

European Central Bank's Upcoming Decision

The European Central Bank (ECB) is expected to announce its decision shortly, with a high probability (98.0%) that it will maintain the refinancing rate at 2.15%. The ECB's cautious stance mirrors that of the Fed, focusing on inflation dynamics. However, even if the ECB holds rates steady, the significant interest rate differential with the U.S. is likely to keep dollar-denominated assets more attractive than euro-denominated ones.

Technical Outlook for EUR/USD

The technical analysis indicates a firm downtrend for EUR/USD, characterized by progressively lower lows since January. The Relative Strength Index (RSI) remains below 50, confirming bearish momentum, although it is nearing the oversold zone, which may suggest potential short-term corrective rebounds.

The Moving Average Convergence Divergence (MACD) is near the zero line, indicating a balance between buying and selling forces, which could lead to a consolidation phase.

Key Levels to Watch:

• 1.16724: Key resistance level aligned with recent highs and the 200-period moving average.
• 1.15355: Near-term barrier that may act as a resistance during potential short-term rebounds.
• 1.14113: Key support level not seen since August 2025; a break below this could reinforce the bearish trend.