The Federal Reserve this morning raised its benchmark interest rate a quarter of a percent from 0.75% to 1.00%.
“Our decision to make another gradual reduction in the amount of policy accommodation reflects the economy’s continued progress. Today’s decision is in line with that view, and does not represent a reassessment.”
Basically, traders remain optimistic because this basically signals that there wont be any surprises or variations from the Fed’s dot plot, signalling that three hikes this year in total is actually going to happen.
The US Dollar was obviously positioning itself further to the side of caution and the huge drop (or rally in the majors like EUR/USD) shows the repricing as the market comes back in line with reality. Buy the rumour, sell the fact happening right in front of your eyes.
It sums up modern day central bank economics in trading forex markets, when the market does exactly the opposite of what the textbook says it should do, all because of how the market is priced heading into the decision or release.
Moving onto the charts and on the blog back in the first week of march, we had been watching this major EUR/USD support level that I’ve quoted here with my thoughts at the time:
So as you can see, we have a pretty obvious support level at the bottom of the chart thanks to that juicy double bottom.
Both touches of the level come within just a 6 pip zone and more importantly, both touches of the level were met with immediate buying to push out of the level HARD.
As we’ve spoken about above already, the market being cautiously positioned meant that when the Fed hiked, the USD got smashed and as a result, EUR/USD was a major winner:
A major winner that just happened to be positioned nicely above higher time frame support and continuing to be bought on every short term technical pullback as a result.
Can you tell how much I love clean and simple technical analysis?
Where do you see the US Dollar (and the majors) heading from here? Open an account and take advantage of Fed driven market opportunity.
Dane Williams – @VantageFX
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Source: Vantage FX Blog