The EUR/USD currency pair made a strong collapse on Thursday. In the last article, we said that you should not rush to conclusions and you need to wait at least one day before making them. We were right. First, it should be noted right away that the growth of the US currency did not begin immediately after the announcement of the results of the Fed meeting. And not even immediately after the start of the press conference with Jerome Powell. This suggests that for some time the market was confused and did not quite understand how to react to what was happening. Second, we see that during the first two or three hours after the publication of the results of the Fed meeting, the pair collapsed down by 50 points, then traded quite calmly during the night, albeit with a downward bias, and accelerated its decline during the European trading session. This means that European traders also wanted to work out such an important event as the FOMC meeting. As a result, the US dollar grew last night, grew at night, grew in the morning, and grew throughout the day. This is what we were talking about when we warned that the reaction could be observed within a day after the event itself. But now we can say with confidence that traders interpreted the results of the meeting unequivocally in favor of the US currency. In principle, it was difficult to do otherwise, because once again there was no ambiguity in Powell's words and the final communique. Therefore, in the end, we were right in one more assumption. Earlier we said that the growth of the euro/dollar pair to the level of 1.1475 may simply be an "acceleration" before a new attempt to overcome the level of 1.1230, which for a long time was the lower limit of the side channel. As a result, yesterday this level was overcome, and the pair continues its decline. Logical from a fundamental point of view.
The Fed left the key rate unchanged but is ready to raise it at all subsequent meetings.
If you look at the official results of the January Fed meeting, there are even some questions about why we are seeing such strong dollar growth? After all, the Fed did not change the key rate, as some market participants expected, and very expectedly reduced the quantitative stimulus program to $ 30 billion per month. Thus, February will be the last month when the Fed will still buy treasury and mortgage bonds. Then - a rate hike, and after a while - the beginning of unloading the balance of the Fed. It was these two factors that ultimately caused the strong growth of the US currency. If earlier (last year) it was expected that the Fed would raise the rate two or three times, now the Fed itself makes it clear that three or four increases are the minimum that should be expected in 2022. Many large banks, experts, and economists believe that the Fed will raise the rate from 5 to 7 times since it will be long and difficult to fight inflation. Yesterday, Jerome Powell himself almost openly stated that his department is ready to tighten monetary policy almost at every next meeting, just to stop the rise in prices in America. In addition, many experts now expect that the Fed will start selling off those bonds that have accumulated on its balance sheet totaling almost $ 9 trillion in June. However, at first, the Fed may not sell securities, but simply not reinvest funds on expired bonds. This will still lead to a decrease in the balance, but it is still expected that the "hawkish" actions will be even more "hawkish". As a result, the Fed makes it clear to the markets that it is ready for radical action. And the markets have shown that they are not satisfied with purchases of the US currency and are ready to follow the Fed. As a result, the US currency broke through its previous local maximum, and on the 24-hour timeframe, it is visible how the price bounced off the Senkou Span B line of the Ichimoku indicator. Therefore, from a technical point of view, everything is also reasonable.
The volatility of the euro/dollar currency pair as of January 28 is 74 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1065 and 1.1213. The upward reversal of the Heiken Ashi indicator signals a round of corrective movement.
Nearest support levels:
S1 – 1.1108
Nearest resistance levels:
R1 – 1.1169
R2 – 1.1230
R3 – 1.1292
The EUR/USD pair continues its strong downward movement. Thus, now it is necessary to stay in short positions with targets of 1.1108 and 1.1065 until the Heiken Ashi indicator turns upwards. Long positions should be opened no earlier than the price-fixing above the moving average line with a target of 1.1353.
Explanations to the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.