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  • EUR/USD has sunk back to test below the 1.12 handle with a fresh post-Fed print of 1.1195 as traders decide that the dollar is still a good bet.
  • Powell has talked up the U.S. economy which is giving some reprieve to the greenback where the DXY has ripped from 97.15 lows to a high of 97.68.

Scrolling back a page, the FOMC statement came as follows:  The FOMC previous statement

Here is the new statement  which remains basically consistent with the Fed’s script:

Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that  economic activity rose at a solid rate.  Job gains have been solid,  on average, in recent months, and the unemployment rate has remained low. Growth of  household spending and business fixed investment slowed  in the first quarter. On a 12-month basis,  overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of  inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Main takeaway:

 Fed to stay patient on rates as the economy is  solid and inflation is muted.

EUR/USD rallied to trendline resistance and then dropped back to where it started as the markets figured that there were  only minor mark-to-market changes to the official policy statement. However, Powell’s delivery, has  far, has been quite bullish and what should be noted is:

  • Powell:  Our baseline view remains that with a strong job market and continued growth, inflation will return to 2% over time.
  • Powell: We have come closer (to inflation target) than most others (central banks).
  • We don’t see any sign s of overheating.
  • Powell: Outlook is positive for growth for the rest of the year due to consumer spending and business investment – (higher levels of wages and employment).  

Risks of runaway inflation would be bearish for the dollar, but Powell has essentially told markets that all is on track towards the Fed’s target and the market is buying it, which is making the dollar and denominated assets attractive to investors.  

EUR/USD levels

EUR/USD was through the 38.2% Fibo of the late March swing highs to recent swing lows around 1.1240 ahead of the  Fed  with some margin to go until testing the trendline resistance. It rallied up to the resistance and then settled back to where it started ahead of Powell. The pair has since dropped below the rising channel’s support to the 23.6% Fibo at 1.1191, printing a low of 1.1189.  

Analysts at Commerzbank argued that the new low has not been confirmed by the daily RSI and has bounced to the 20-day ma, suggesting that while camped around this territory, the market remains directly offered and above will suggest further short covering:

 “Be advised that the pattern being traced out is a potential large reversal pattern, we have divergence of the weekly RSI and a 13 count on the weekly chart as well and there is a risk of reversal. Support at 1.1110 is regarded as the break down point to 2018-2019 support line (connects the lows).”