EUR/USD rallied on Wednesday above the 10- and 200-day moving averages, indicating they may look past comments from Fed Chair Jerome Powell later in the session as they fixate on signs of U.S. economic weakness.
Though Fed rhetoric has generally been hawkish, markets have taken a dovish view of signs that policymakers are willing to slow the extraordinary pace of rate hikes, pulling down the projected terminal Fed rate EDH3 from early-November highs.
Any signs that Powell is tempering his hawkish stance would weaken rates, dragging the dollar down and pushing EUR/USD higher.
There's also little room for Powell to adopt a more aggressive view in light of weakening data nL1N32P1CAnL1N32P1XFnL1N32P204 and highly inverted 3-month/10-year and 2-year/10-year spreads, which imply recession is likely.
A dovish Powell surprise could allow EUR/USD to rally above 1.0500 and make a run for the 1.0800 area.
Risks from November ISM and S&P Global manufacturing PMIs and the employment data loom, and downside surprises could lead markets to expect a less aggressive Fed.
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