FX.co ★ Powell's two-day speech in Congress will clarify everything

This week is full of interesting events that could lead to a shift in market dynamics.

This primarily concerns the demand for the US dollar, which has significantly decreased after the recent Federal Reserve meeting. Jerome Powell's testimony before lawmakers this week could change everything. The policymaker will likely state that Federal Reserve officials need additional confirmation of slowing inflation before they can lower interest rates — and this is given the growing trend of slowing price growth and employment.

The consumer price index data for June is expected to be another step toward this goal. Still, the figures will be published only on Thursday — after the Fed chairman completes his two-day testimony in the US Congress. On Tuesday, Powell will speak before the Senate Banking Committee and the House of Representatives on Wednesday.

Recall that the latest data released last Friday on the US labor market showed the highest unemployment rate since the end of 2021 — figures that likely illustrate weaker economic growth in the future, which some lawmakers will emphasize during Powell's testimony as they try to understand why the Fed is not in a hurry to lower borrowing costs.

Last Tuesday, Powell stated that recent data indicates inflation is declining again, but he and his colleagues want to see this progress continue. The so-called core consumer price index, which excludes food and energy costs, is considered the best indicator of inflation and is expected to rise by 0.2% in June for the second consecutive month. Despite the increase, this will also mark the smallest gain since August last year, which could be quite acceptable for Fed officials. The overall consumer price index is also forecasted to increase by 0.1% compared to the previous month. The price indicator will rise by 3.1% compared to June last year.

But will this be enough for the Fed to reverse course? Unlikely. Recent minutes from the Fed's June policy meeting showed that several officials, while considering the risk that further demand slowdown could lead to higher unemployment, do not consider a 4.1% unemployment rate a problem — at least not yet.

As for the current technical picture of EUR/USD, buyers need to focus on breaking through the 1.0840 level. Only this will allow them to aim for a test of 1.0865. From there, it may be possible to reach 1.0900, but doing so without support from major players will be quite challenging. The furthest target will be the 1.0940 maximum. In case of a decline in the trading instrument, I expect significant action from major buyers around 1.0810. If there is no one there, it would be good to wait for a test of the 1.0785 minimum or to open long positions from 1.0760.

Regarding the current technical picture of GBP/USD, pound buyers need to break through the nearest resistance at 1.2830, which also serves as the weekly maximum. Only this will allow them to aim for 1.2860, beyond which breaking through will be quite difficult. The furthest target will be the 1.2890 area, after which a sharper jump of the pound to 1.2925 can be discussed. In the event of a fall in the pair, the bears will try to take control of 1.2790. If they succeed, breaking through this range will deal a serious blow to the bulls and push GBP/USD down to a minimum of 1.2765, with the prospect of reaching 1.2735.