While risk sentiment is mixed on Wednesday ahead of Powell’s testimony and FOMC meeting minutes, the greenback remains on the offensive, extending gains fueled by stronger-than-expected jobs data released on Friday.
The dollar behavior shows that traders expect a somewhat less dovish tone from the Federal Reserve, though a 25bp rate cut in July is fully priced in already. Against this backdrop, EUR/USD remains close to the 1.12 psychological support though makes some recovery attempts amid signs of waning USD demand at the start of the European session.
Traders will be closely watching Powell’s testimony in front of the House Financial Services Committee as he is expected to deliver important comments on monetary policy and the outlook of the US economy. It will be interesting to see if the Fed’s governor succumbs to the pressure from Donald Trump who has repeatedly criticized the central bank’s tight monetary policy. Should the statement and the FOMC minutes come not as dovish as expected, the greenback could rally. In this scenario, EUR/USD will derail the 1.12 handle and target the 1.1180 support.