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Powell helps bring dollar strength for EUR/USD, GBP/USD and USD/JPY

Dollar showing signs of strength within EUR/USD, GBP/USD and USD/JPY, but the Powell bounce could prove fleeting if Omicron sparks fresh lockdowns.

​EUR/USD struggling to break through $1.1374 resistance

EUR/USD has been on the rise of late, with shifting expectations around the Federal Reserve Bank (Fed) monetary policy proving key to sentiment in the days since the arrival of the Covid-19 Omicron variant.

While Powell touted a somewhat dovish line on Monday, yesterday saw him pivot towards a more hawkish message of a potential ramp-up in tapering. This is helping to reverse the pair from the $1.1374 swing high, which is being respected once again this morning.

A break back up through that level would bring greater confidence of a bullish continuation of the recent recovery phase. However, until that happens there is a chance, we see the price start to reverse lower in line with the long-term bearish trend in place.

GBP/USD turning lower from trendline and Fibonacci resistance

GBP/USD has also seen some upside of late, although the shift in monetary policy expectations from the Fed are largely negated by a similar change in outlook for the Bank of England (BoE).

Today sees an appearance from BoE Governor Bailey, thus providing the basis for the pair volatility. The chart highlights how the price has rally up into a confluence of resistance today, with the descending trendline and 76.4% Fibonacci bringing a potential turning point for the pair. As such, a bearish outlook holds here, with a rise through $1.337 required to negate that outlook.

USD/JPY turning higher after Powell comments

USD/JPY is another pair that has been driven by the shift in outlook for US interest rates, with the pair reversing into a seven-week low on Tuesday.

However, Powell’s more hawkish tone yesterday brought about some stability around the key ¥112.72 support level. With the price moving higher, a break-up through the ¥113.96 resistance level would bring greater confidence of a protracted move higher.

As with EUR/USD, the risk here is that Powell’s hawkish intent may count for little in the event that this latest variant sparks a fresh economic contraction. Such a move would likely send USD/JPY lower, with a break below ¥112.53 bringing greater confidence in a fresh downside move.

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