Fed Alters Plans, Delivers Biggest Rate Hike Since 1994
InstaForex Group | Jun 16, 2022 05:30AM ET
As expected, the Fed raised the benchmark rate by 0.75% to 1.75% after an unexpected surge in inflation. However, such a considerable change in interest rates had almost a zero effect on the market since the US dollar showed an excessive rise in the previous two days.
It means traders had priced in a bit more aggressive tightening than planned. Notably, by last Friday, everyone was sure that the key interest rate would not exceed 3.00% at the end of the year. However, inflation resumed growing, thus pointing to the necessity of higher interest rates.
Nevertheless, Jerome Powell has not commented on the issue yet. His announcements were so vague that it is still unclear what measures the US regulator could take. Meanwhile, at least at the moment, the greenback has exhausted its upward potential.
It is no wonder that the currency lost some of its positions after the meeting. The market was waiting for an answer to a particular question. However, it is still unknown whether the benchmark rate will surpass 4.00% or not.
The market situation before the meeting was much more interesting than after it. Thus, since the beginning of the trading day, the euro was losing value quite rapidly. Initially, the decline was spurred by the eurozone industrial production report.
The indicator’s drop accelerated to -2.0% from -0.5%. Economists had anticipated a slowdown to -0.6% from -0.8%. However, even an upward revision of the previous data failed to improve the situation. European industrial production is displaying a significant decrease.
Notably, the report reflects the state of affairs in April, a month before the EU imposed an embargo on Russian oil. Moreover, the EU has not found alternative suppliers of energy resources yet. It means that its industrial production will continue falling.
At the beginning of the US trade, the euro started sliding even faster amid the US retail sales figures. Economists had expected a slowdown in the retail sales growth to 7.1% from 7.8%, but the indicator advanced by 8.1%. An unexpected jump in consumer activity propped up the US dollar. Nevertheless, the greenback depreciated amid uncertainty about the Fed’s future actions.
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The volume of short positions dropped after the euro/dollar pair approached the local low of the downtrend. As a result, the pair rebounded from the support level of 1.0350. On the four-hour and daily charts, the RSI technical indicator is moving near the lower area of 30/50, thus pointing to the bearish sentiment among traders.
In the same time frame, the Alligator’s moving averages are headed downwards, proving a change in the market sentiment from bullish to bearish. On the daily chart, we see an attempt to prolong the mid-term downtrend. The greenback’s recovery after the recent correction totals 97.5%.
Traders will receive a signal of a further decline in the pair when the price settles below 1.0350 at least on the four-hour chart. Until then, there is a possibility of a correction or flat formation due to overheating short positions.
Regarding the complex indicator analysis, we see that technical indicators signal buy opportunities in the short-term period amid the rebound from the support level. On the intraday and mid-term periods, the indicator provides sell signals.
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