Market players always one step ahead
Hi, dear traders!
Yesterday, the Federal Open Market Commission released its March meeting minutes. The main event of this trading week matched the expectations of market players. The FOMC board members agreed on more aggressive monetary tightening. "Participants judged that it would be appropriate to move the stance of monetary policy toward a neutral posture expeditiously," the document said. It clearly indicates that the Fed is planning to increase the interest rate to reach the neutral level of 2.4%, which was signalled earlier. Furthermore, the board members noted that the Fed's policy decisions must take account of the state of financial markets and the economy. If the global economy begins to slump, the regulator will have to tone down its hawkish stance. However, currently there is no reason for the Fed to do so.
The strong state of the US economy and the labor market allows the regulator to tighten its policy and hike the Fed funds rate more quickly. In regard to reducing the balance sheet, FOMC board members generally agreed on rolling off a maximum of $60 billion in US Treasury notes and $35 billion in mortgage-backed securities per month. The regulator is planning to begin reducing the balance sheet in May, earlier than originally planned and more rapidly than previously anticipated. "Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified," the minutes said. This hike is likely to occur in May. Board members underlined the war in Ukraine, rising energy prices, and high inflation as the main risks for the US economy. The overall tone of the March meeting minutes was quite hawkish - the Fed confirmed it was committed to an aggressive monetary tightening and tried not to disappoint the markets.
Daily
According to the daily chart, USD found little support from the meeting minutes - the hawkish rhetoric of the FOMC was likely already priced in by the market. In the future, a 50 basis point hike could be priced in by the market in advance as well. Market players generally react to key events ahead of time - USD advanced only slightly against EUR after the meeting minutes were released. At the time of writing, EUR/USD was trading near 1.0928. If the pair continues to move upwards, it would return to the broken support level of 1.0945. The pair's performance near that level would determine its further price dynamics - if EUR/USD closes above 1.0945, it would indicate the breakout of the support level was false, increasing the pair's upside potential.
H1
According to the H1 chart, the pair does not have a set trend, despite all factors favoring the US dollar. The pair's downtrend could resume only if the pair breaks through the key support level of 1.0800, which seems unlikely at this point. The highlighted candlestick, which appeared after the FOMC meeting minutes were released, is also quite notable. Both long and short positions with close targets can be opened, but going short could be the best course of action. Traders could open short positions if the pair retraces into the 1.0945 area. Above this level lie the black 89-day EMA line, which could be a strong obstacle for the pair in the technical area of 1.0940-1.0960. Short positions can also be opened if the pair fails to return above the blue 50-day MA line, followed by bearish reversal candlesticks near the 50 MA line.
Good luck!