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The dollar is falling despite the hawkish mood of the Federal Reserve and the highest increase in consumer inflation. This background turned out to be advantageous for euro bulls, who were able to push the quote above 1.1400 the day before and aimed for the next level – 1.1500. Since the EUR/USD pair has come out and settled outside the narrow range in which it has spent a long time, it has every chance of further growth.
In addition, the “third wave” reversal pattern has formed on the weekly timeframe. It is worth paying attention to this, since euro bulls within the framework of this movement can swing to higher levels. If they manage to break through the 1.1500 level, then the next target will be the 1.1700 mark.
The euro shot up, however, there is no reason to talk about a trend change yet, since the single currency owes its growth to the declining dollar. The euro’s growth does not correspond to the fundamental component, the divergence of the policy of the Fed and the European Central Bank will still make itself felt sooner or later. What is happening now in the EUR/USD pair is nothing but a correction of the dollar after a long growth. The euro, after testing 1.1500-1.1700, may return to decline again.
In fact, it is quite difficult to assert this, since the picture for the dollar is unclear – there are conflicting signals from both technical and fundamental factors.
The dollar index dropped below 95.00 for the first time in two months. Quite a sharp movement. As a rule, such a decisive exit is followed by further movement along the breakthrough line. In the coming sessions, such a scenario may well be realized.
Dollar bears aimed for the area of 94.00-93.50. Near the first target – 94.00 – there is a 61.8% Fibonacci retracement level from the magnitude of last year’s dollar growth and the starting point of the last impulse in November. Near 93.50 is the area of the highs of 2021. This mark may well act as a strong support.
There is a correction in the dollar now, and it is unlikely to be reasonable to talk about the upcoming big wave of dollar growth. First you need to relive the mood that has formed this week.
In general, the US currency has a good chance of resuming growth, it has a strong fundamental basis. Senior members of the Fed almost daily make hawkish comments, and judging by the growing inflation, they will not overplay, but will still begin a series of rate hikes from March.
Fed Chairman Jerome Powell, speaking to lawmakers on Tuesday, said that inflation is a priority for the central bank. When planning policy tightening, the Fed will focus primarily on these indicators, and not on economic growth and the labor market.
The head of the San Francisco Federal Reserve, Mary Daly, predicted the first rate hike in March. This means that there will be no pause between the end of purchases on the balance and the first rate increase.
Representatives of the central bank are giving more and more signals that rates may rise more often than once a quarter, as was the case in the previous policy tightening cycle. Most of the other major central banks in the world are not yet ready for such drastic steps. With such a development of events, a steady craving for dollar purchases should be formed.
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