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So, as you know very well, yesterday was a landmark event of the entire current week. The US Federal Reserve System (FRS) announced the results of its two-day meeting, followed by a press conference by Fed Chairman Jerome Powell. Few doubted that as a result of the January meeting, the regulator would leave the rate at the same level of 0.25%, and therefore the main attention of market participants was focused on the rhetoric of the speech of the head of the American Central Bank. Experts considered different options for what the tone of Powell’s speech might be, as a result, it turned out to be extremely “hawkish”. Here are the highlights of the Fed Chairman’s speech.
The labor market corresponds to full employment. The members of the Open Market Committee (FOMC), overwhelmingly, are in favor of an early rate hike. At the same time, the rate may rise almost at every Fed meeting. Powell also believes that employment will not be harmed in the event of a rate hike. The world’s leading economy has successfully passed through the COVID-19 pandemic and is in excellent condition. The process of raising rates is likely to begin in March. Powell also recalled that the main instrument of the Fed’s monetary policy is the federal funds rates. As for the reduction of the Fed’s balance sheet, it may begin earlier and proceed faster, which is facilitated by the economic situation in the United States. A decrease in inflationary pressure is forecast this year. Of the risks, Powell noted omicron, the COVID-19 strain, which could put pressure on economic growth in the current quarter. However, according to the head of the Fed, the wave of the omicron strain will not be long, which means that the negative impact on the American economy is expected to be minimal. Nevertheless, at the current meeting, no specific decisions were made on the timing of rate increases, that is, no schedule was drawn up. Needless to say, such a pronounced “hawkish” performance by Jerome Powell has not been heard for a long time. As a result, the US dollar has significantly strengthened its position against its main competitors. It couldn’t have been any other way.
Today, from 13:30 London time, an impressive block of macroeconomic statistics from the United States will begin to be released, where it is worth highlighting preliminary GDP data for the fourth quarter, as well as orders for durable goods and initial applications for unemployment benefits.
As expected the day before, in the case of more aggressive rhetoric from the head of the Fed, the US dollar will receive good support, and the EUR/USD currency pair may fall to the area of 1.1250. And so it happened, Wednesday’s trading ended even a little lower, at 1.1240, and at the moment of completion of the article, the euro/dollar continued its downward trend, trading already near the significant technical level of 1.1200. If the sellers’ pressure does not weaken, (and this is unlikely) the pair will test the key support level at 1.1187 for a breakdown, which, given the strong bearish sentiment for EUR/USD, most likely will not stand and will be broken. Purely technically, selling before a broken support level is not the best trading idea, so I suggest using short-term bounces to 1.1223,1.1240 and 1.1260 to open short positions. It is better to refrain from buying now, let’s see how long the market will win back the “super-hawkish” speech of the head of the Fed.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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