The euro/dollar currency pair has entered a rather intense downtrend cycle. So, at yesterday's trading, the main currency pair of the Forex market collapsed and ended trading under the most important technical and psychological level of 1.2000. Well, this was to be expected, especially after the failed attempts in the previous days to return to the upward scenario.
Daily
If we look at the candles for June 14 and 15, everything is clear and logical. Attempts by the euro bulls to return to strengthen the exchange rate were doomed to failure. The candle indicates it with a long upper shadow for June 15. I believe that the Tenkan (red) and Kijun (blue) lines of the Ichimoku indicator played a significant role in the strong resistance, which blocked the quote in the north direction. If we return to the fundamental factors, then yesterday's impressive strengthening of the US currency was an echo of the results of the two-day extended meeting of the US Federal Reserve System (FRS) and the subsequent press conference of the head of the US Central Bank Jerome Powell. As expected, the Fed did not change the monetary policy parameters and kept the federal funds rate at 0.25%. However, since this decision coincided with market expectations, other factors became the driver for strengthening the US dollar against the single European currency. At the same time, the rate of excess reserves increased from 0.10 to 0.15 percent. In general, the Fed's position on the main interest rate remains the same. None of the Fed's leaders expect it to increase this year. But even this can no longer be called a sensation.
Let me remind you that the Fed has repeatedly signaled a possible rate hike no earlier than the middle of next year, and then only in the case of a favorable economic situation and an inflationary component. Following the Fed's latest meeting, seven Open Market Committee members do not rule out raising the main interest rate around the middle of next year. In the meantime, the US Central Bank will continue to buy securities. The monthly volume of treasuries will still be $ 80 billion, and mortgage securities will be purchased at the level of $ 40 billion per month. The Fed again assured markets that it would take all necessary actions to support the economy, significantly affected by the COVID-19 pandemic. At the same time, the Fed once again noted the increased economic activity and employment, which is quite natural in recovery after the coronacrisis.
Regarding the updated economic forecasts, it is necessary to note a significant change in the forecast for inflation, which this year is now expected at 3.4% compared to the previous forecast of 2.4%. The forecast for GDP also increased, which is expected to be around 7% this year. According to economists of the US regulator, unemployment this year will be near the level of 4.5%, and next year it will fall to 3.8%.
During his press conference, the head of the Federal Reserve, Jerome Powell, again noted the improving indicators on employment and economic activity. Also, Powell once again highlighted the growth of business investment and particularly strong growth in household spending. Regarding the jump in inflation, the chairman of the Federal Reserve again called this factor temporary. Jerome Powell again recalled that such a rapid recovery in economic activity and a strong increase in inflation are quite natural phenomena after the crisis. If we see inflation steadily entrenching above the 2% target, it will be time to adjust monetary policy, which primarily involves raising interest rates, Powell said. From all of the above, we can conclude (or make an assumption) that the Fed is quite optimistic and does not rule out tightening monetary policy next year. I think that this was the main reason for such a strong strengthening of the US dollar.
If we go to the trading recommendations for EUR/USD, the main one is selling the pair after corrective pullbacks to the price zones 1.1985-1.2010 and, possibly, higher after reaching the price area 1.2030-1.2080. However, I do not think that the pair is capable of such an impressive corrective pullback in the current situation. I believe that the bears will make every effort not to let the rate go above the key level of 1.2000. At the end of the article, the euro/dollar is trading near the lower border of the Ichimoku indicator's daily cloud, the exit from which and the breakdown of the orange 200 exponential moving average will finally indicate further downward prospects for this trading instrument. The conclusion is logical and straightforward.
