The euro/dollar pair updated its 20-months low amid the general strengthening of the US dollar. The price previously touched this barrier in the late spring of 2020. Bears seem determined to extend the downtrend.

Both the hawkish Federal Reserve and US Q4 GDP data released yesterday are driving the euro/dollar pair down. The reading came in the green zone, well above market consensus. Consequently, the US dollar index skyrocketed, reflecting mounting demand for the greenback. The American currency is now bullish against its major counterparts. Speaking of EUR/USD, the strong support level of 1.1000 is now seen as the target. Just 150 pips are left to reach it.

The US economy accelerated by 5.7% last year, the strongest growth since 1984. The US media immediately reported that the American economy had expanded at the fastest pace since Ronald Reagan was president. Indeed, GDP hit its 37-year high. In 2020, US GDP fell by 3.5%, the low unseen since 1946.

In quarterly terms, the figure also exceeded all expectations. It jumped to 6.9%, well above the market forecast of 5.3%. An increase in private inventories is named as the driving force for the American economy. Firstly, consumer spending rose by 3.3% in the 4 quarter of 2021. Capital investments by companies also soared by almost a third. In addition, exports surged by 24.5% and imports were up by 17.7%. In the 3 quarter of 2021, the American economy expanded by just 2.3% q/q. Consequently, the greenback skyrocketed.

Due to the strong GDP report, the Federal Reserve may take a more aggressive stance on monetary policy. Judging by the outcome of the January FOMC meeting, the regulator may raise interest rates at every meeting this year. Experts initially suggested there would be 3-4 rate hikes throughout December 2022. So, Chairman Powell beat all expectations of analysis this time. Ahead of the FOMC meeting, only Deutsche Bank warned its clients that the market was underestimating the Fed's hawkish rhetoric aimed at curbing inflation. The bank's analysts assumed that the US central bank could announce some 6-7 rate hikes this year starting from the March meeting.

When market participants digest the results, the euro/dollar pair may well stay in the range of 1.1130-1.1250 for a while. If so, a more or less deeper corrective move should be used to open short positions. Every new key report, including Nonfarm Payrolls and inflation, will be viewed by traders from the perspective of monetary policy. Such data should come at least in line with market forecasts. This will be enough for bears to approach the support level of 1.1000.

Technically, the euro/dollar pair broke the lower trendline of the Bollinger Bands, settling below the support level of 1.1200 on the daily chart. The next target is seen at 1.1120, the lower band of the Bollinger Bands indicator on the weekly chart. On higher time frames, the Ichimoku indicator produced a bearish signal "Parade of Lines'', indicating the possible continuation of the downtrend. In the intermediate terms, bears may test 1.1000, which is going to be the major target in the next few weeks.