USD Gains After Fed’s Hawkish Stance

Jun 17 21, 11:33 GMT

The greenback jumped yesterday reaching an almost two-month high against a basket of its counterparts after the Fed projected earlier rate hikes, the first of its post pandemic monetary policy which are expected now to take place in 2023. The bank’s Chairman also noted that there had also been discussions about tapering the bank’s QE program. It’s characteristic that the bank in its accompanying statement stated that amid the progress made with vaccinations and strong policy, indicators of economic activity and employment have strengthened, while in his press conference the Fed’s Chairman Jerome Powell stated that It’s clear we’re on a path to a very strong labour market. Attention now turns to today’s financial releases with the Philly Fed index and the initial jobless claims figure dominating the scene.

EUR/USD tumbled yesterday breaking the 1.2090 (R1) support line, now turned to resistance, yet it should be noted that the 1.1990 (S1) support line held its ground. We tend to maintain a bearish outlook for the index, yet the intense drop yesterday may provoke some second thoughts on whether the initial market reaction was excessive. It should be noted that the RSI indicator below our 4-hour chart, is below the reading of 30, which on the one hand, confirms the dominance of the bears yet on the other hand it may imply that the pair is oversold. Should the bears actually maintain control over the pair’s direction, we may see it breaking the 1.1990 (S1) support line and aim for the 1.1885 (S2) support level. Should the bulls take over, we may see the pair aiming if not breaking the 1.2090 (R1) resistance line.

CBRT interest rate decision

TRY traders are expected to keep their eyes fixed on the Central Bank of the Republic of Turkey (CBRT) interest rate decision today and the bank is expected to remain on hold with its one week repo rate unchanged at 19.0%. Given the recent deceleration of the CPI rate some could argue that such a position by the bank could be justified, yet the CPI rate is still at rather high levels and definitely higher than the bank’s 5% target. The situation with tourism this year seems to be disappointing and if so could tighten even further the allready strained FX reserves of the bank, lessening its ammunitions to defend the Lira. Overall, we see the risks related to the release as tilted to the downside for the TRY, given the bank’s stance currently.

USD/TRY rose yesterday breaking the 8.5710 (S1) resistance line, now turned to support. It should be noted that the pair’s price action, is at high levels nearing a record high at 8.7600 (R1) resistance line. Overall we tend to maintain a bullish outlook as an upward trendline seems to be forming. We note that the RSI indicator below our 4-hour chart, is above the reading of 50, aiming for the reading of 70 implying the presence of the bulls. Should the buyers extend their influence over the pair’s direction, we may see the pair aiming if not breaking the record high levels of 8.7600 (R1) resistance line. Should a selling interest be displayed by the market we may see the pair breaking the 8.5710 (S1) support line, the prementioned upward trendline and start aiming for the 8.3500 (S2) support level.

Other economic highlights today and the following Asian session:

Today during the European session, we note the release of SNB’s, Norgesbank’s and CBRT’s interest rate decisions from Switzerland, Norway and Turkey respectively. Also please note that we get the final HICP rate of the Eurozone for May. In the American session, we get weekly initial jobless claims figure and the Philly Fed Business index for June. During tomorrow’s Asian session we highlight from Japan BoJ’s interest rate decision yet before that we get Japan’s inflation measures for May. As for speakers we note ECB Lane which is scheduled to speak, while ECB President Lagarde participates in the Eurogroup.

EUR/USD H4 Chart