EUR/USD rebounds from its lows as concerns arise over the Fed's autonomy

EUR/USD Surges Amid Dollar Weakness and Geopolitical Uncertainty

During Monday's Asian session, the EUR/USD pair climbed by 0.35%, trading close to 1.1680 after rebounding from a recent one-month low of 1.1620. The US Dollar came under pressure following reports that US authorities are seeking to launch a criminal investigation into Federal Reserve Chair Jerome Powell. Despite this, ongoing unrest in Iran continues to bolster demand for the safe-haven Dollar, limiting the Euro's gains.

According to The New York Times, Powell is facing a criminal probe related to his testimony before the Senate Committee about renovations at a Federal Reserve facility. Powell addressed the situation in a video statement, describing the investigation as “unprecedented” and suggesting it is part of a broader effort to pressure the central bank into lowering interest rates.

With few major economic releases scheduled for Monday, investors are turning their attention to a speech by Atlanta Fed President Raphael Bostic. Later in the week, the focus will shift to Tuesday’s US Consumer Price Index (CPI) report and a series of speeches from Federal Reserve officials, which could provide further insight into the central bank’s policy direction. Additionally, the US Supreme Court is expected to issue a decision on President Donald Trump’s tariffs on Wednesday, a development that could also influence the Dollar.

Key Market Drivers: Dollar Slides as Fed Autonomy Faces Scrutiny

• The criminal investigation into Fed Chair Powell represents a significant escalation in political interference with the central bank, raising concerns about its independence and the Dollar’s standing as a global reserve currency.
• Tensions in Iran are intensifying, with reports indicating a harsh crackdown on protests resulting in hundreds of casualties. Tehran has also warned it may target US military installations if it perceives an imminent threat.
• Recent data released on Friday showed that while the US labor market remains stagnant, it is not worsening. The unemployment rate fell more than expected, reinforcing the likelihood that the Fed will maintain current interest rates at its upcoming meeting on January 27-28.
• Preliminary results for January’s Michigan Consumer Sentiment Index rose to 54.0, up from 52.9 in December and exceeding market forecasts. This marks a second consecutive monthly improvement, suggesting a more optimistic economic outlook and supporting a steady policy stance from the Fed.
• In the Eurozone, Monday’s main event is the Sentix Investors’ Confidence Index, which has remained negative since August. However, its impact is expected to be minimal as market participants remain focused on US monetary policy and Middle East developments.

Technical Outlook: EUR/USD Faces Resistance Near 1.1700

The EUR/USD pair has staged a strong recovery from its recent lows around 1.1620. Despite remaining within a downward channel established since late December, technical indicators on the 4-hour chart are showing signs of improvement.

The Moving Average Convergence Divergence (MACD) has moved above its signal line, indicating that bearish momentum may be waning. Meanwhile, the Relative Strength Index (RSI) has crossed above the critical 50 mark, pointing to strengthening upward momentum.

Looking ahead, the pair is expected to encounter significant resistance near the top of the channel and the January 7 high around 1.1700. Should this level be breached, the next target is the January 6 high at 1.1742. On the downside, key support lies just above 1.1615, which corresponds to the lows from December 8 and 9, followed by the December 2 low near 1.1590.

(This technical analysis was generated with the assistance of AI tools.)