EUR/USD surges toward 1.1200 as Powell turns dovish

• Traders react by selling the Greenback, pushing EUR/USD to its highest level of the year at 1.1183.
• Fed Chair Powell signals readiness to adjust policy, opening the door for potential rate cuts, boosting the EUR/USD.
• US 10-year Treasury yield drops to 3.81% as market anticipates possible 50 basis point cut at the September Fed meeting.

The EUR/USD rallied sharply after hitting a daily low of 1.1105 after Federal Reserve Chairman Jerome Powell said, "The time has come for policy to adjust," opening the door to ease policy. Therefore, the major jumped toward 1.1170 and posted gains of over 0.54%.

EUR/USD soared after Fed Chair Powell hints at rate cuts

In his speech at Jackson Hole, Powell stated that the size and timing of rate cuts would be data-dependent, adopting a stance like the European Central Bank (ECB). He added that he's confident that inflation "is on a sustainable path back to 2%," adding that those risks have diminished, contrary to increasing risks on employment.

Meanwhile, traders of Fed funds futures had priced in a 33% chance of the Fed cutting its interest rates by 50 basis points at the upcoming September meeting.

In response to Powell's speech, traders ditched the Greenback, and the EUR/USD hit a new yearly high of 1.1183 before retreating to current exchange rates. At the same time, the US 10-year Treasury note yield dropped four basis points to 3.81%.

EUR/USD Price Forecast: Technical outlook

The daily chart hints that the EUR/USD could test the 1.1200 figure, which, once cleared, would expose the July 18, 2023, peak at 1.1275 ahead of testing 1.1300.

From a momentum standpoint, buyers are gathering steam, as depicted by the Relative Strength Index (RSI), clearing the 70 level. Due to the strength of the uptrend, the most extreme readings suggest that 80 would be considered overbought.

On the other hand, if EUR/USD fails to clear the 1.1200 mark, the pair could be subject to a pullback, which could pave the way for retesting 1.1100  before diving toward the August 14 high of 1.1047.