USD Pulls Back after the Fed, Focus on to the ECB

US Dollar, FOMC, ECB, EUR/USD Talking Points:

• The FOMC hiked again at today’s rate decision but they refrained from committing to any additional policy tightening, instead taking on a tone of data dependency.
• The net move in the USD thus far has been weakness with a pullback continuing after yesterday’s resistance test. This puts the focus on to tomorrows rate decision at the European Central Bank.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET. It’s free for all to register: Click here to register.

There were few surprises at today’s FOMC rate decision but perhaps the overwhelming takeaway was the non-committal stance from Powell towards future policy moves. He continued to say that the bank was data dependent and hadn’t yet decided on what to do at the next rate meeting in September.

I had discussed this in the webinar yesterday, denoting that specific item of ‘data dependency’ to be a possibly dovish item as it allowed the Fed to refrain from committing to additional hikes while keeping the door open for their ability to do so if needed.

The initial reaction was a strong push of USD weakness with DXY testing the support level at 100.87. That stalled the sell-off and a bounce developed to claw back some of that bearish move. At this point DXY remains below prior support around the 101.05 level.

From the daily chart, however, there’s still a valid case on either side of the argument and tomorrow’s rate decision at the ECB will likely have some input on the matter.

In DXY, the longer-term bearish breakout still retains some potential as there’s been a hold at the 50% mark of that move at 101.50, which helped to cauterize the high yesterday. But, on the bullish side of the coin which would be shorter-term, the response to that resistance hasn’t yet pushed back below the key support level around the 100.80 level.

US Dollar - DXY Daily Price Chart (indicative only, not available on Forex.com platforms)

EUR/USD

The Fed wasn’t overtly hawkish at today’s rate meeting, but the ECB has been pretty hawkish lately. There has been a negative turn in European data of recent and this brings questions to just how hawkish the ECB might remain to be and in EUR/USD, the same setup that I’ve looked at a couple of times already this week remains in-play, and it’s somewhat of the mirror image of the above.

EUR/USD put in a bullish breakout after US CPI data drove USD weakness a couple of weeks ago. And what started as a pullback continued until price had moved all the way back into the 1.1000-1.1100 zone, which had held as resistance over a couple of different occasions in the first half of the year.

On the below chart, we can see EUR/USD putting in its first green day after six consecutive red days. So, this could be an oversold bounce, but it keeps the door open for bulls around tomorrow’s ECB meeting as there’s now been a support test at prior resistance.

Short-term resistance has since held at 1.1108, with another resistance point a little higher around 1.1145. For support, the current low came in at 1.1027, and then 1.1000 level is below that. And if that’s tested through, 1.0943 sticks out as the next level of interest in EUR/USD.

EUR/USD Daily Price Chart

--- written by James Stanley, Senior Strategist