Yesterday, the Federal Reserve raised the benchmark rate by 0.25% to 5.00%, as expected by most market participants. Now the markets are pricing in a 60% chance the Fed raises its benchmark interest rate by 25 basis points in May as well. The FOMC members themselves expect the rate to be 5.1% by the end of the year and 4.3% at the end of 2024, raising it from the previous 4.1%. But market participants, following the mainstream belief of “don’t trust the Fed,” are laying in the federal funds rate at 4.25% at the end of this year.
As a consequence, the dollar index is down 0.64%. However, the stock market is already holding out against current rates with the S&P 500 down 1.65% yesterday. I believe the stock market will deepen the fall, and risk aversion will be stronger, even if the European Central Bank raises the rate by 0.50%. The stock market will naturally be followed by counter-dollar currencies.
This morning, the pair climbed above the MACD line on the 1D chart with the Marlin oscillator going upwards. Yesterday’s momentum was quite strong, it might be enough for the price to reach the target level of 1.0990. A consolidation above the level might extend the rally to 1.1200.
To bring back the downward movement, the price should consolidate under the MACD line (1.0850). A confirmation of the reversal will be the price exit under yesterday’s low, i.e. under the range of 1.0758/87.
On the four-hour chart, the price is growing vigorously, supported by the indicators. Yesterday’s trading volumes were not high and encouraged caution. Until we see the first signs of a reversal, we are waiting for the euro to rise.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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