The Federal Reserve’s (Fed) 25 basis point rate hike on Wednesday did not come as a surprise to the markets. Most traders were more concerned about whether the Fed will open the door to a possible pause going ahead in light of the banking sector jitters and signs of a moderating economy.
The EURUSD currency pair gained 36 basis points as traders bought into the subtle signs given off by the Fed of a possible rate pause in the next June meeting. Today, traders will await the European Central Bank’s (ECB) next interest rate move. With a 25 basis point rate hike priced in, will the ECB surprise or not?
Following the Fed’s rate hike, the EURUSD currency pair’s uptrend was unscathed as the price failed to turn lower while remaining well above the 100-day moving average. Support and resistance stayed at the 1.09094 and 1.10935 levels, respectively, while the 61.80% Fibonacci Retracement Golden Ratio of the range was also respected as support.
Bulls were firmly in control and led the pair toward resistance. However, volumes declined as price approached the 1.10935 level, signalling the lack of interest in the upside or a period of lower activity as traders anticipate the ECB interest rate decision.
If a high volume breakout above the 1.10935 level plays out, the market could be in contention to take the pair higher, with the highs of 2022’s first quarter now in the picture. Alternatively, a textbook reversal from the resistance level could play out if bears outdo bulls. Bears will likely look to the Golden Ratio level as a point of interest if they commit to the downside.
The 1.10935 level will be key in determining whether the market is preparing for a further leg up or concluding its leg up. If the ECB raises rates, the market will likely find interest in buying the Euro, adding additional pressure on the Greenback battling with a likely pause ahead.
Sources: Reuters, TradingView