Financial markets were buoyant last night due to news from the Fed. Interest rates remained unchanged — as expected. However, somewhat unexpected was the harsh rhetoric of Jerome Powell, who said that:
→ interest rate reduction in March is unlikely;
→ the Fed needs to see more data to be confident in the rate change.
This cooled financial market expectations for a rate cut in March, which in turn led to a strengthening of the US dollar relative to other currencies and a decline in stock indices, with risk assets falling especially sharply.
The strengthening of the US dollar caused the EUR/USD rate to drop below 1.079 today for the first time since mid-December last year.
The EUR/USD chart today shows that the price is falling towards the lower border of the ascending channel (shown in blue), and the market is very sensitive to psychological levels:
→ the level of 1.100 (which we paid attention to in the analysis on November 29 and December 15) in January acted as an important resistance twice, preventing the price from rising.
→ Level 1.075, from which reversals were formed, may provide support. Bulls can also pin their hopes on it, since the lower boundary of the ascending channel passes near the level of 1.075.
→ The 1.050 level seems unattainable – but who knows, if the Fed continues to keep rates high “for as long as necessary,” this could lead to a breakdown of the ascending channel, opening the way to support 1.05.
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