22.03.2023 12:17 PM
Analysis of EUR/USD on March 22. EUR likely to decline after Fed meeting

Hi everyone! The EUR/USD pair rose above 1.0750 on Tuesday. It may approach 1.0861, the Fibonacci correction level of 200.0%. The upward corridor indicates a bullish sentiment. However, it is rather narrow. It will be difficult for the pair to break out of it. If the pair declines below this level, it may fall to 1.0609, the Fibo level of 161.8%.

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Bulls have been able to push the euro to monthly highs in the last 4 days thanks to positive fundamental factors. There were lots of different news, events, and speeches. Despite bearish pressure, the euro managed to climb. However, the results of the Fed meeting could change the situation drastically. Besides, the US currency might have been falling for some time because of the upcoming meeting.

After three banks collapsed in the United States at once and the Fed announced an emergency lending program to help funnel cash to banks, expectations of an aggressive rate hike at the March meeting lowered markedly. Traders revised their forecast for monetary policy due to the crisis in the banking sector. Besides, after adopting the Bank Term Funding Program (BTFP), it does not make sense to undertake a 50 basis point rate hike. It means that the regulator would simultaneously tighten and soften monetary policy. As a result, the US dollar could have lost ground. However, I believe that investors have already factored in a dovish scenario. So, no matter what rate decision the Fed makes, the greenback may advance. If the regulator takes a dovish stance, the US dollar may remain at the same levels or grow slightly. If the Fed makes a hawkish decision, the greenback could return to 1.0609.

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On the 4-hour chart, the pair consolidated above the downward corridor yesterday. This is why it may hit 1.0941, the Fibonacci correction level of 50.0%. There are no divergences in any indicator. However, in the evening, market sentiment may change dramatically as it is difficult to predict the Fed's decisions now.

Commitments of Traders (COT):

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In the last reporting week, speculators closed 6,886 long positions and opened 6,865 short ones. The sentiment of large traders remains bullish. However, please note that the last available report is from March 7. It was revealed several weeks ago. The total number of long positions now amounts to 234,000 and short ones – 85,000. The euro has been falling for several weeks but at the same time, there are no fresh COT reports. In the last few months, there have been lots of positive factors for the euro. Hence, it has been growing for some time. The situation remains favorable for the euro after a protracted downward movement. The outlook is bullish at least until the ECB raises the interest rate by 50 basis points.

Economic calendar for US and EU:

US – Fed's rate decision (18:00 UTC).

US – Jerome Powell's speech (18:30 UTC).

On March 22, the economic calendar for the European Union is empty. However, traders are looking forward to the Fed meeting today. Jerome Powell will also make a speech at a press conference. The impact of fundamental factors on market sentiment could be rather strong.

Outlook for EUR/USD and trading recommendations:

Traders are recommended to open short positions if the pair declines below the 1.0750 level on the hourly chart or after a retreat from 1.0861. I advised you to open long positions if the price rises above 1.0609 and 1.0750 with the target level of 1.0861 on the hourly chart. You may keep these trades open at least until the evening.

Samir Klishi,
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