The increase in the refinancing rate of the Federal Reserve by 75 basis points, from 1.75% to 2.50%, did not come as a surprise. In principle, the market was ready for this since the previous meeting of the Federal Open Market Committee. It is surprising how rapidly the dollar began to lose its positions. It is noteworthy that this happened during the press conference of Fed Chairman Jerome Powell. Indeed, Powell's words caused complete surprise.
First, he did not give any specifics on the extent of the increase in the refinancing rate during the FOMC's September meeting. Powell only noted that it will be "massive." At the same time, he noted that when making a decision, the central bank will be guided by inflationary dynamics. So in September, the refinancing rate may be raised once again by 75 basis points, for which the market has long been ready. But the difference is that now there is no guarantee of such a rise in interest rates. On the contrary, there is a possibility of a somewhat more modest increase.
Second, Powell said nothing about the coming recession. More precisely, during his speech, he did not say anything about it. When asked a direct question, he only replied that there was no recession, and that the first estimate of GDP for the second quarter, which is published today, is likely to be not entirely accurate. It turns out that the Fed does not see any signs of the beginning of a recession, or pretends not to.
Thirdly, in the final part of his speech, Powell assured that the central bank would seek employment growth, although in the spring there were signs of overheating of the labor market. And this may well become a completely independent cause for a recession and an explosive increase in unemployment. In such a situation, the central bank, on the contrary, should strive to stabilize the labor market and slow down the rate of growth in the creation of new jobs.
Otherwise, the consequences will be horrendous. But according to Powell, nothing will be done in this direction. In other words, the central bank does not see any signs of a recession, and will continue to do everything to start it as soon as possible.
Refinance rate (United States):
All this, of course, not only surprised investors, but rather frightened them. Which weakened the dollar. However, a strong interest rate differential will take its toll and the dollar will soon rise again. Although today it is likely to continue to lose ground. Just under the pressure of GDP data. Of course, there is no talk of any recession in the second quarter, but there is no doubt that they will show a significant slowdown in economic growth. Which would contradict Powell's words. And this reduces the credibility of the central bank, which is probably even worse.
Change in GDP (United States):
The GBPUSD currency pair successfully rebounded from the psychological level of 1.2000, as a result, the primary signal about the prolongation of the corrective move was confirmed on the market. As a result, the quote rushed towards the level of 1.2155.
The technical instrument RSI H4 during the speculative price momentum came close to the level of 70. This approach may indicate a characteristic overheating of long positions. RSI D1 is at the levels of February this year. This may be a signal of a change in trading interest. In this case, this is only an assumption, we should get many more confirming signals of this theory.
The moving MA lines on the Alligator H4 indicator are directed upwards, which corresponds to a corrective move. Alligator D1 has a clear intersection between the green and red MA lines, which indicates a slowdown in the downward trend.
Expectations and prospects
In this situation, much depends on how the quote behaves within the level of 1.2155. Since keeping the price above it with confirmation of the breakdown of the value of 1.2200 can strengthen the upward move.
At the same time, a slowdown in the upward cycle cannot be ruled out, where a rebound may occur amid overheating of long positions. In this case, the course may return to the previously completed level.
Complex indicator analysis has a buy signal in the short-term and intraday periods due to the prolongation of the correction.