Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -19.6516
In the evening, as soon as the results of the March Fed meeting were published, the pair increased by 75 points, however, it immediately stopped growing, which in total lasted no more than an hour. It turns out that the US currency fell even before the press conference with Jerome Powell. It turns out that the markets reacted in this way to the information that was known even before the meeting. Hardly anyone thought that the Fed would change the key rate or change the volume of asset purchases from the open market. The Federal Reserve did not change the key parameters of monetary policy. Moreover, the US Central Bank announced an increase in forecasts for economic recovery after the pandemic, which can hardly be interpreted as a "bearish" factor for the dollar. In all other respects, nothing new and interesting was announced or reported by the Fed. Thus, the meeting can be considered "another passing one". However, why did the US currency fall? Recall that a market is a huge number of subjects of various categories and colors. Small traders do not trade directly in the forex currency market next to Bank of America. Their positions are formed by a brokerage and dealing centers before entering the foreign exchange market. Thus, by and large, no one can ever predict the movement of the pair and the market's reaction to a particular event, no matter how absolute it may seem. Simply put, after the Fed announced an increase in economic growth forecasts, no one prevented any Bank of America from starting to sell off the US currency, than to provoke its fall. And other traders at this moment sat and racked their brains, why the US dollar fell if the forecasts from the Fed rose? Remember how many times in the last 6-8 months there has been no reaction to the meetings of the ECB, the Fed, or the Bank of England at all? That is, all this is normal for the foreign exchange market. Every time a technical signal is formed or an important fundamental or macroeconomic event occurs, we can only assume that the pair will behave in a certain way. That's all. If the forecast comes true, it turns out to earn money.
Back to the Fed meeting. We have already said that the rates and volume of the bond repurchase program remained unchanged. The Fed improved its GDP forecast for 2021 from 4.2% to 6.5%, and also raised its inflation forecast from 1.8% to 2.4%. The Fed also expects that the unemployment rate will continue to decline and will be 4.5% in 2021. Thus, analysts, all as one, declared more optimistic statements of the Fed than they expected. Fed Chairman Jerome Powell noted that the regulator will continue to support the economy for as long as it takes. In his opinion, despite the growth of the economy and employment, "the path of further recovery is difficult and foggy". Jerome Powell also responded negatively to the question about the possible curtailment of the quantitative easing program or reducing its volume. Recall that now the Fed buys $ 120 billion worth of bonds on the open market every month. Also, the so-called "median forecast" of the members of the Fed's monetary committee was published. It reflects the mood of the committee members regarding the change in the key rate. According to this forecast, the key rate will remain unchanged in 2021, 2022, and 2023. This means that in the next three years, the Fed can only expect a reduction in the QE program. This means that the Fed is not yet ready to respond to the potential increase in inflation by tightening monetary policy. However, despite the increase in forecasts for inflation, it should be noted that it remains below 2%, so it is still too early to sound the alarm. "Even exceeding 2% of inflation will not be a sufficient reason to raise rates," says Powell. And the Fed will warn the markets about the curtailment of the QE program.
Meanwhile, the yield on 10-year US government bonds continues to grow and reached the level of 1.74% at the auction on March 18. Perhaps it was this event that provoked the strengthening of the US dollar yesterday. It should also be noted that the Fed still does not show any concern about the growth of Treasury yields. The ECB is much more concerned about this. Yesterday, the head of the European regulator, Christine Lagarde, made a speech and said that the ECB is trying to keep the further increase in the cost of borrowing in the bond market, which, in her opinion, is due to a possible increase in inflation in the United States. The ECB said after its meeting last week that the pace of open-market bond purchases under the PEPP program would be increased to keep yields as low as possible. However, according to Lagarde, it will be quite some time before it will be possible to see the reflection of this decision of the central bank in the statistics on bonds. We can also say that it was the Fed that increased the risks for the debt market, as it raised its forecasts for inflation, but at the same time almost completely dismissed the possibility of raising rates earlier than 2024. All this will continue to provoke a rise in bond yields, not only in the US but also in other countries of the world.
From a technical point of view, the euro/dollar pair is in prostration in the last week. There is no trend movement. Quotes quite often change the direction of movement and are torn between several important fundamental factors at once. On the one hand, in the coming days, the US currency may begin a new long-term round of decline, as an additional $ 2 trillion will begin to flow into the US economy. On the other hand, the yield of treasuries is growing, and we remember that the markets in recent weeks usually respond to this process with purchases of the US currency.
The volatility of the euro/dollar currency pair as of March 19 is 77 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1848 and 1.2002. A reversal of the Heiken Ashi indicator upward will signal a new round of upward movement.
Nearest support levels: S1 – 1.1902 S2 – 1.1841 S3 – 1.1780
Nearest resistance levels: R1 – 1.1963 R2 – 1.2024 R3 – 1.2085
Trading recommendations:
The EUR/USD pair has consolidated below the moving average, so now there are more chances for a new round of downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1902 and 1.1848 until the Heiken Ashi indicator turns upward. It is recommended to consider buy orders if the pair is fixed back above the moving average with targets of 1.1963 and 1.2002.
