The Fed came out slightly more hawkish than expected this week, keeping interest rates unchanged at 5.00-5.25% but adding 50 bps to the projected terminal rate in the Dot Plot. The FOMC decided to pause this meeting to gather more economic data before deciding on another possible hike at the July meeting. Their caution has recently been justified by weaker details NFP message, ISM Services PMI message a CPI report, although fundamentals remain sticky at elevated levels.
Fed Chairman Powell mentioned that the July meeting is “live” but did not want to commit ahead of time. The market reacted with a quick bid in the US dollar when the Dot Plot was released, but it bounced back to its original levels once Powell’s press conference began. Overall, it just shows that the Fed is ready to do more to reduce inflation, but everything will depend on economic data. Yesterday, US Jobless Claims again significantly missed expectations, which may be another sign that the labor market is indeed weakening.
The ECB raised interest rates by 25 basis points as expected and hinted at another hike in July. In addition, ECB sources said that a further increase in September would be discussed in the summer. This created a bit of a policy difference between the FED and the ECB in favor of the euro.
EURUSD Technical Analysis – Daily Time Frame
On the daily chart, we can see that the EURUSD finally bottomed once the Fed members signaled a June hike at the end of May and the US data started to disappoint. Appreciation from hawkish expectations led the USD to erase gains and ultimately fall as other central banks either surprised with rate hikes or signaled more. The moving averages have moved higher again, which is a bad sign for USD buyers.
Yesterday, the price dragged a bit after the hawkish ECB event and is now back to the previous level support has now turned to resistance. Generally, when the price expands enough from the blue moving average of 8, we can see some consolidation or pullback to bring it back to some balance before the next move.
EURUSD Technical Analysis – 4 Hour Time Frame
On the 4-hour chart, we can see that buyers have leaned on the red moving average of 21 into a more long position, and the price is now consolidating a bit at the 1.0942 resistance. The price may continue to rise today and extend to a high of 1.1033, but from a risk management perspective, the risk for long-duration reward is bad.
A good support level for buyers should be the level of 1.0850 where we can find a confluence with the red moving average of 21 ie. trend line and 38.2% Fibonacci retracement level. The stop in such a case would be below the 61.8% Fibonacci level and the target at roughly the 1.11 handle. Even better support would be the aforementioned 61.8% Fibonacci retracement level, where buyers would have a very tight trace below.
Sellers, on the other hand, are likely to lean on this 1.0941 resistance to target the trendline or 1.0779 support. If the price breaks below the 1.0779 level, we should see more sellers and extend the selloff to the 1.0635 low.
EURUSD Technical Analysis – 1 Hour Time Frame
On the 1-hour chart, we can see the trade setup for buyers and sellers in more detail. Buyers should lean on the 1.0850 support zone, while sellers here can either go short with a stop somewhere above the high and target the trendline, or wait for a break below the 1.0779 support to pile on a sell-off at the 1.0635 low .
Today, the market is likely to focus on the University of Michigan consumer sentiment report. Most recently, the market reacted strongly to this as long-term inflation expectations showed a big jump to growth from 3.0% to 3.2%. However, the number was later revised to 3.1%. So we are likely to see the dollar rise if we see another jump in long-term inflation expectations and fall if the data misses forecasts.
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