- Federal Reserve raised rates as expected, but the end of the cycle is near.
- DXY tumbles after Fed meeting, then recovers; Euro outperforms.
- EUR/USD rises for fifth consecutive day, post highest daily close since February 2.
On Fed’s monetary decision day, the EUR/USD reached levels above 1.0900 and then pulled back. The pair continues to move with a bullish tone, but some exhaustion signs emerged amid a US dollar recovery. Volatile market conditions are still in place and there is more to come with more central banks decisions on Thursday and PMIs on Friday.
European Central Bank (ECB) President, Christine Lagarde, mentioned early on Wednesday that underlying inflation dynamics remain strong and that they are neither committed to raise interest rates further nor finished with hiking. Governing Council member, Pierre Wunsch, argued that if markets stabilize, they have to do more. Fellow member Ignazio Visco warned that credit growth in Europe has slowed, adding the important issue now is to avoid a credit crunch. Overall, if the outlook improves, more rate hikes seem likely. European yields moved to the upside after the comments, supporting the Euro that outperformed on Wednesday.
As expected, the Federal Reserve raised its interest rate by 25 bps at the March meeting. The statement signaled that the end of the current tightening cycle is near. In the projections, the median 2023 rate is seen between 5.00% and 5.25%, suggesting just one more hike before a pause. Initially, markets cheered the decision and the statement, but later some comments from US Treasury Secretary Yellen weighed on stocks. Thereafter, the US Dollar recovered some momentum, ending the day far from the bottom and with positive momentum.
On Thursday, markets will continue to digest the FOMC meeting decisions. In addition, the Swiss National Bank (SNB) and the Bank of England (BoE) will announce their decisions, with both expecting to raise rates by 50 bps and 25 bps, respectively. Those decisions could impact the FX board. In the US, economic data to be released includes the weekly Jobless Claims, February Chicago Fed National Activity Index and February New Home Sales.
EUR/USD short-term technical outlook
The EUR/USD rose for the fifth consecutive day. The daily chart shows a clear bullish bias but some exhaustion signs suggest some consolidation before the next leg higher, unless a sell-off of the US Dollar sends the pair back above 1.0900. The mentioned level is a critical area that should limit the upside for the moment. On Wednesday, EUR/USD broke decisively above the 1.0800 area. It peaked at 1.0911, 400 pips above last week’s low. After such a rally, some consolidation is on the table.
Ahead of the Asian session, EUR/USD is retreating and it could continue to do so as the RSI in the 4-hour chart turns to the downside at overbought levels. The immediate support stands around 1.0845, and then comes the 1.0800 area. A slide below 1.0800 would weaken the outlook for the Euro.
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