US Dollar bid on FOMC outcome Where to from here
US Dollar bid on FOMC outcome- Where to from here?
On the back of the FOMC outcome from yesterday, in which Fed members showed the median forecast for 2 interest rate hikes by the end of 2023 (up from 0), the US Dollar has moved aggressively higher. The DXY was near the 50% retracement level of a descending wedge just above 90.50 pre-FOMC. However afterwards, the US Dollar Index shot up to the wedge target at 91.48. Today, the DXY is continuing higher, but where does it go from here?
Source: Tradingview, City Index
On a 240-minute time frame, we can see that price is approaching horizontal resistance and the 61.8% Fibonacci retracement level from the March 31st highs to the May 25th lows. In addition, the RSI is well into overbought conditions near 81.67. Is it time for the DXY to pullback to allow the RSI to unwind a bit before moving higher? Horizontal support and the 200 Day Moving Average is near 91.50 and additional horizontal support is near 90.90. If so, what does that mean for USD pairs?
EUR/USD
Similar but opposite to the DXY, EUR/USD was trading near 1.2100 prior the FOMC statement. Afterwards, the pair broke aggressively lower to the 50% retracement level from the March 31st lows to the May 25th highs near 1.1980. On the 240-minute timeframe, price has now reached the 61.8% Fibonacci retracement level from the same timeframe, while the RSI is in extreme oversold conditions. This indicates the pair maybe ready for a bounce to let the RSI unwind. If so, sellers be may be looking to enter the market near the 1.1989 level, as well as, additional resistance above at 1.2050. EUR/USD is in a longer-term bearish wedge than the DXY, and the target is 1.1700. However, price must first break support at 1.1860 and the upward sloping longer-term trendline near 1.1745.
Source: Tradingview, City Index
GBP/USD
On a 240-minute timeframe, GBP/USD is acting like EUR/USD. Prior to the announcement, the pair was trading new 1.4130 after forming a rounding top. On the announcement, price broke lower below the important psychological support level of 1.4000. Today, price continued lower below the 50% retracement level from the lows of April 8th to the highs of June 1st. Notice the RSI is trading below 23.50, an indication price may be ready to bounce, while the RSI unwinds. Sellers will be sitting near 1.4000 to push the pair lower again. Watch for price to target the upward sloping trendline from mid-January near 1.3840.
Source: Tradingview, City Index
Look at many other USD pairs and there will be similar price action to those above. The US Dollar may continue higher, however, given the RSI readings and support and resistance levels mentioned above, it may be time for a short-term correction, which would allow for better entries into USD pairs.
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