The US dollar climbed to its 2-year high against the Euro on Thursday after the Federal Reserve’s decision on interest rates. The EUR/USD exchange rate fell to 1.1034, which is the lowest level since May 2017.
The Euro was already under pressure on Wednesday night, just after the Fed’s interest rate decision, and fell below the 1.11 USD limit. At noon, the European Central Bank (ECB) set the reference rate at 1,1151 USD.
The reason for the appreciation of the US dollar was the statements of Fed President Jerome Powell that further correction this year is unlikely. As monetary policy is expected to ease further in Europe, the Euro has already weakened significantly in recent weeks. At the end of June, the EUR/USD exchange rate was still above 1.14.
The US Dollar Index, which measures the strength of the greenback against six major currencies, is navigating fresh year-to-date highs in the vicinity of 99.00 the figure, area last visited in mid-May 2017.
The rally in US Dollar Index remains everything but abated so far today, and particularly after the Federal Reserve gave extra wings to the buck in the wake of yesterday’s decision to reduce the Fed funds Target Rate by 25 bps to 2.00-2.25%, matching the broad consensus among investors. The rate cut was considered by the Fed as a mid-cycle “adjustment”.
The decision to cut rates, however, was not unanimous, as Boston Fed Eric Rosengren and Kansas City Fed Esther George voted for a no move on rates. Following Chief Powell’s press conference, the Fed is now likely to remain data-dependent and in a “wait-and-see” mode, removing expectations of further rate cuts later this year. The Fed also signaled that it plans to end the Balance Sheet Reduction next month.
At the moment, the US Dollar Index is gaining 0.24% at 98.80 points and faces the next resistance at 98.93 points (2019 high August 1) seconded by 99.89 points (monthly high May 2017) and finally 100.00 (psychological level). On the flip side, a break below 98.37 points (high May 23) would open the door to 97.87 points (61.8% Fibo of the 2017-2018 drop) and then 97.27 points (55-day SMA).
Bulls now target an upward sloping trend-line connecting highs marked in November month of 2017 and 2018, at 99.53 points now. However, 99.00 points round-figure might offer an intermediate halt to the greenback gauge’s rally.
In a case, the quote keeps rising past-99.53, the 100.00 points psychological magnet will lure the buyers.
EUR/USD has finally chosen where to go – down. The sharp downfall to the lowest since May 2017 has been fueled by another decision. The Federal Reserve has cut interest rates as expected but conveyed a confident message. The next move in the US depends on the all-important jobs report due tomorrow, where an upside surprise – or at least an adverse EUR/USD outcome cannot be ruled out.
The EUR/USD quickly broke below previous yearly lows in the 1.1100 neighbourhood and recorded fresh YTD low at 1.1033 during early trade. Further downside thus remains on the cards with the next target of significance at 1.0839 (2017 lows recorded on May 11).
Below 1.1032, the pair is possible to look for support ar 1.1025, which served as resistance in May 2017. The exchange rate of 1.0960 worked as resistance in April and awaits below the round 1.1000 psychological barrier. The rate around 1.0900 is next down the line after working as a swing high in March that year.
On the upside, the previous 2019 low of 1.1101. Next, we find 1.1120, which was a temporary low beforehand. Further up, the last week’s high of 1.1190 is a substantial cap 1.1240 is next.
The hawkish nature of the FOMC policy meeting late on Wednesday allowed USD/JPY bulls to retake control and pick up steam above the 109 important level.
Technically, the pair could consolidate gains in the short-term as the RSI is positively sloped and not far below its 70 overbought mark. The indicator is already in the overbought territory in the four-hour chart. Yet, with the price having cleared the 50-day simple moving average (SMA), and the 50% Fibonacci of the upleg from 104.64 to 112.39, the market is likely to keep trending up. It is also worth mentioning that the 20-day SMA is set to cross above the 50-day SMA, increasing hopes for an upward-moving market.
On the way up, the price should climb above the upper surface of the Ichimoku cloud, currently around 109.58, for the rally to continue until the next 110 major resistance level. Higher, the bulls could hit a stronger wall near the 200-day SMA and the 23.6% Fibonacci of 110.56, which if finally broken, could open the door for the 111 psychological mark.