FED rate decision report
The FED decided to raise interest rates by 25bps in its first meeting of 2023 to match market expectations, sending the rates to the highest level since October 2007.
Initially, the US Dollar dropped following the rate increase which came out as expected.
Market participants were looking for the FED to continue rising rates at a slow pace not exceeding the 25bps in the coming meetings, and potentially to pause the rate hikes later this year.
However, during Jerome Powell’s speech following the rate decision, he mentioned that the FED continues to anticipate that ongoing increases will be appropriate in order to achieve a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.
This statement came against market expectations and clearly leaves the door open for more rate hikes if needed and that future monetary policy decisions will be data-dependent while inflation will be actively monitored.
In addition, Jerome Powell affirmed on Wednesday that it is going to take some time for inflation to cool down and that the central bank is not ready yet to reverse its current monetary policy, which eliminates any potential rate cut this year.
This message is likely to give a strong boost to the US Dollar at least in the short term, however, it seems that it took some time for investors before digesting the FED’s intentions.
Looking now at the weekly technical picture of the US Dollar index to get an overview of the potential movements in the long-term, alongside the hourly charts of EURUSD, GBPUSD, and Gold, to analyze the short-term impact of the recent FED rate decision.
US DOLLAR INDEX (DXY)
The US Dollar managed to bounce strongly as prices entered a critical support zone.
When analyzing the chart below, we can see that the dollar index has reached the formerly broken resistance zone which was located near the 103.00 level and this previous resistance is likely to turn into support, in addition, we might see strong buyers as we approached the 100.00 psychological level.
Moreover, when using the Fibonacci tool, we can find that prices have retraced 50% of the bullish cycle that started from 88.15 low in February 2018 and ended at 114.80 on September 2022. For all those technical reasons, there is a possibility to see a rising demand for the US Dollar, which can lead to a rebound in the coming weeks. However, the expected recovery can fail as the bearish cycle from 114.80 remain impulsive. Long-term traders should focus on 105.60 as a reference point, and only a weekly close above this level can signal a major shift in the US Dollar bearish trend.
To summarize, the US Dollar is likely to benefit from the recent FOMC monetary policy statement and trade sideways to higher initially before another wave of decline may start in the coming weeks.
EURUSD
The Euro rally stalled at the 1.1000 psychological barrier after reaching a high of 1.1033 during Thursday’s Asian trading session.
Technically, the short-term trend has turned neutral in this pair as prices have erased a big part of this week’s gains and reintegrated the previous range that was located between 1.0930 and 1.0780 levels. Therefore, any recovery attempt should face new sellers from the 1.0930 and 1.0950 levels in the coming hours.
On the other side, if the pair continues to head south, traders should look for the 1.0850 level followed by the 1.0800 support to provide short-term support. Meanwhile, prices are likely to remain supported unless we see a daily close below 1.0780 support, which will clear the path for a strong downside continuation.
GBPUSD
The British pound fell sharply following the Bank of England rate decision after prices failed to overtake the 1.2450 resistance that was tested several times since the beginning of this year.
Looking at the short-term price action, the trend has turned bearish in this pair as sellers succeeded to push prices below the hourly support zone of 1.2280-1.2260.
As of now, the bearish momentum has grown significantly, and the pair is likely to extend lower in the direction of 1.2170 support followed by 1.2150 in extension on the back of USD strength.
On the opposite, only a move back above 1.2325 can weaken the current bearish outlook.
GOLD
Gold faced strong selling pressure from the key technical resistance zone of 1950-1956 alongside buyers’ profit-taking.
For the time being, the bullish momentum is slowing down due to the recent US dollar jump. However, the positive trend remains unchanged, which can lead to price stabilization in the coming hours.
In the near term, traders should focus on the 1900-1895 support zone, as the yellow metal is likely to remain firm while trading above the mentioned zone.
To conclude, gold prices are likely to find support and start rising again in the coming days, and the last decline is likely to be temporary unless we see a daily close below the $1895 main support.
Economic analyst
Amine Hiani