The FED Statement, DXY, EURUSD and GBPUSD Report
Warning: This article is a shortened version of the Global Report prepared for our investors. Intraday traders may not get any benefit of this article.
What FED said after FOMC Meeting?
Simply: The FED managed to exceed expectations on Wednesday by scaling back its projected interest-rate increases this year to zero and saying it would stop shrinking its balance sheet assets in September.
The point is, the Fed made clear in January that it was willing to be “patient” in part to keep equities from extending December’s big drop and damaging the broader economy. They backed off from tightening early this year because the market drop scared them into believing markets knew something about the economic outlook. If there was symmetry in their thinking, they should be thinking about tightening again.
We can find thousands of reasons:
- The FED chose to act as a Global Central Bank.
- To take the early necessary actions against an upcoming recession in the US economy to parallel to a potential Global Recession in the second half of 2020.
- The U.S. may need the USD to fall to help finance the budget deficit.
But we can summarise the new FED: Less Predictable
“The Fed built up a lot of credibility among investors in the last few years by raising rates nine times in a measured manner that didn’t roil markets. Equities gained, credit markets continued to hum, government bond yields remained relatively low and volatility was muted. But now, the Fed is becoming less predictable and markets may end up suffering as a result. Perhaps that’s why stocks only briefly rose after the announcement before closing lower” – Bloomberg
The Reasons The FED puts on the table:
- Lowering its economic-growth projections ( Growth and Inflation )
- Global growth concerns.
- China slows down.
- Global uncertainties ( Including Brexit and maybe the US /China trade tariffs )
- Slowing down Eurozone. ( We can easily add Political Turmoil such as Italy and France )
The potential results of new FED stance in the longer term:
Simply: The latest statement of FED means – If they do not make another “U-Turn”: Coming to the end of the tapering period started in 2013. The more US Dollar Liquidity and the less “strong” US Dollar in the longer term.
Important things to keep in mind:
- This “dot plot” has already been priced in by the market players.
- The US Dollar is still the strongest currency in the basket.
- The slowing down Eurozone keeps EURUSD under hard selling pressure.
- The Sterling and Yen may get demand in the near future. ( We keep our GBPUSD median term target 1.36-1.38 and 1.40-1.45 longer term) That is why we entered a longterm short EURJPY trade( Made 150 pips in two days so far.) and we keep selling EURGBP.
- XAUUSD is ready to shine in the near future. ( XAUEUR would be a better instrument)
We would like to take a look at DXY in this part of the article. EURUSD, GBPUSD and XAUUSD forecast will be published in Part 2 and Part 3.
Dollar Index Technical Overview:
Following the fall after FED, DXY recovered from 95.77 and ended the week at 96.55.
As seen on the Daily Chart, DXY is having difficulty to find demand on every attempt to break above 97.70
The picture is clear: On the upside 97.72 resistance and on the downside 95.00 support
The index is trying to hold above EMA 50 and EMA 100.
DXY is likely to trade in a horizontal range between support and resistance for a while. ( Brexit uncertainty, easing policies of ECB, U.S – China trade talks could support DXY in the near term)
To see a major move of DXY, we need to see the breakout of the support and resistance.
However, looking at the ECB’s monetary policy and the Global fundamentals, a potential breakout of the 95.00 support does not seem possible for the next 3-4 months.
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DISCLAIMER: This is a technical analysis study, not advice or recommendation to invest money
DXY: Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. Chartreaderpro does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility