After little break, dollar returned to its uptrend again, gaining against all of its major counterparts. The fresh new incentive came from the Federal Reserve (Fed) Chairman Jerome Powell stating that the outlook for the U.S. economy is even more optimistic as expected before.

At the time of writing, EUR/USD was seen trading down at the price of $1.1633, while USD/JPY rose to ¥113.070.

Technical levels

EUR/USD

In case of further drops, traders should pay attention to the support level seen at $1.1525 with further strong one held at the price of $1.1400 or $1.1335.

On the other hand, resistance levels could be seen at the price of $1.1735 or $1.1765, already tested before.

EUR/USD – H4 chart

USD/JPY

As the dollar has exceeded also the resistance level at ¥112.80 and ¥113 we have been warning about before, the next one is seen at the price of ¥113.35 or even higher at ¥114.00.

Support levels could be seen at ¥112.250, ¥111.35 or at ¥110.75.

USD/JPY – H4 chart

Fundamentals

During the congressional testimony on Tuesday, Fed’s Powell informed that he expected the country to reach a multi-year trend of steady growth. With regard to the labor market, he saw an impressive creation of new jobs per month, exceeding expectations (reaching 215K).

Along with the improvement in labor market, the U.S. economy has grown at solid pace in 2018. During the first quarter, the GDP added 2% and the Q2 proved to be even stronger (not closed yet), based on job gains, tax incomes, households’ optimism. Also inflation proved to be encouraging after couple of years below 2%. Nevertheless, Powell would not declare victory on inflation goal as a great contributor to inflation comes from the oil market. However, he sees the appropriate monetary policy to contribute to this factor as well.

Based on the optimism, coming from Powell’s testimony, dollar gained remarkably, dragging down all the major peers, missing any fundamentals that could help to correct the impact.

Following the mood, the two-year treasury yield jumped to a decade high, reaching 2.62% on Wednesday. On the other hand, 10-year treasury yields firmed at the level of 2.864%.

As the monetary policy divergence still plays the key role, investors do not expect much from the European Central Bank (ECB) or from the Bank of Japan (BOJ) in comparison with the Fed, supported by fiscal policy along with adequate monetary one, missing in the EU countries very frequently.

Top image: Adobe Stock

 

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About Author

Marek Bocanek

After finishing law and economic studies, Marek launched his career in Brno, Czech Republic in the financial sector, specializing in capital markets and related legal issues. After 6 years of experience in the industry he moved back to Bratislava, Slovakia, where he worked as an analyst in the forex market for another 3 years. Simultaneously he was a trader focused on the major forex pairs and oil futures.

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