The US dollar climbed in early Thursday trading, retracing some of its losses from the previous session that it incurred after the Federal Reserve roiled markets by abandoning all plans to raise rates this year, a signal its three-year campaign to normalize policy might be at an end.
Investors had rushed to the prospect of lower interest rates later this year, while yields on government bonds shrank to their lowest levels since early 2018.
The US central bank cut its expectations for 2019 interest-rate increases from two to zero, downgraded its economic outlook as Chairman Jerome Powell stressed that it was a “great time” to be patient.
The US dollar index fell by 0.5% to 95.908 points and recorded its worst one-day percentage drop since January 25 on Wednesday. Later the index climbed slightly and returned above 96 points, as at the time of writing is trading at 96.20 points.
On the broader picture, the greenback’s stance still appears constructive while above the short-term support line.
The US Federal Reserve cut its forecasts for economic growth, inflation, and unemployment. Thus, the US central bankers have retreated from their aggressive monetary policies. The US Federal Reserve kept the benchmark interest rate in the range of 2.25-2.50%, reiterating the promise to be a “patient” about its monetary policy.
In a separate statement, the US monetary regulator announced that it would begin to delay the sale of its bond portfolio and stop it in late September by limiting its monthly buyout limit to 15 billion USD instead of 30 billion USD, as announced at the end of September last year. The Fed then intends to keep its balance sheet “relatively constant for a while” with the aim of shrinking gradually.
However, other central banks around the world are also stepping back in tightening of the monetary policy in recent months to renew incentives as growth is slowing almost everywhere. The need for incentives means that most central banks will not want their currencies to appreciate against the dollar, so they will offer more favorable conditions for their local currencies.
Euro eases from six-week high at 1.1448, posted after strong bullish acceleration on Wednesday.
The pair advanced 0.66% on Wednesday, which is the biggest one-day rally since January 25, after Fed surprised markets with its ultra-dovish stance and smashed the US dollar.
However, traders took profit from the four-day EUR/USD rally which accelerated on Wednesday, pushing the price lower.
Wednesday’s rally generated several bullish signals on a break above important technical barriers, surging through converged 55/100 SMA, daily cloud and closed above Fibo 61.8% of 1.1569/1.1176 fall at 1.1420.
Current easing could be seen as positioning for fresh upside, with extended dips expected to find ground above broken 55/100 SMA barrier, now reverted to support and reinforced by bull-cross with 5SMA, to keep bulls in play.
Repeating of EUR/USD close above Fibo barrier at 1.1420 is needed to confirm bullish stance and open way for extension towards 200SMA (1.1481).
Following the FOMC’s dovish tone in yesterday’s announcements, the greenback came under heavy selling pressure and continued to suffer losses against its major rivals on Thursday to drag the USD/JPY pair to its lowest level since early February at 110.30.
The pair extended weakness to new five-week low at 110.29 on Thursday following strong fall previous day, sparked by Fed surprise on more dovish than expected stance which signaled no rate hikes in 2019 and lowered GDP forecast.
The greenback was sharply lower after the announcement (the pair was down 0.68% for the day on Wed) and maintains weak tone today.
The bears found footstep just ahead of 55 SMA (110.18) and psychological 110 support, violation of which would expose pivotal Fibo support at 109.25 (38.2% of 104.59/112.13)
The British pound is the currency with its own problems. It retreated to 1.3205 USD after the British Prime Minister Teresa May made an offer to postpone Brexit until June 30 despite the resistance of many EU member states.
During Wednesday’s trading session, the currency exchange rate passed the support level of the 200-hour simple moving average to end the trading session at 1.3200. On Thursday morning, the rate was located at 50% Fibo at 1.3163. Note, the chart was fully reviewed to draw a new pattern!
In regards to the near-term future, it is expected that the British Pound will be trading below the 50.00% Fibonacci retracement level to stay at the 1.3100 level.
On the other hand, today’s UK Retail Sales at 9:30 GMT might push the British Pound to appreciate against the US Dollar to the 1.3200 level.