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Pulls Back to Wipe Out Most of the Gains

 The Federal Reserve has reiterated its “tighter for longer” thesis, and it seems that the markets are finally starting to pay attention.

  • The EUR/USD took a significant fall during Thursday’s trading session, almost wiping out the gains made on Wednesday against the greenback.
  • The market seems to be trying to determine its next move, as it’s below the 50-Day EMA and above the 200-Day EMA, which often results in noisy behavior.
  • Consequently, we can expect a choppy market going forward. Additionally, the market recently retreated from the 50% Fibonacci level following a nice recovery, and it appears that it could continue the overall downtrend seen last year. If that happens, the market could quickly drop down to the 1.00 level.

For now, the market is likely to remain noisy and consolidate as there are no significant drivers that traders seem to be focusing on, apart from bond yields. It’s essential to keep a close eye on the 10-year yield in the United States, as it could have a considerable effect on what happens next. The tightening of monetary policy in the United States has been like a wrecking ball against almost everything and is expected to continue to be so.

 The Federal Reserve has reiterated its “tighter for longer” thesis, and it seems that the markets are finally starting to pay attention. If the markets become convinced that the Federal Reserve will remain tight with its monetary policy for a long-term move, it will likely send money into the US dollar and away from risk assets.

If the market breaks above the 1.07 level, there is a possibility of reaching the 1.08 level quickly. However, above that level, things become difficult for the bulls to make a move. Conversely, breaking the 200-Day EMA to the downside is likely to trigger a lot of systematic trading, which could have a snowball effect on the momentum of selling pressure. In that scenario, we could see a bit of an “air pocket” present itself, as the markets would drop rather quickly. The parity level will attract a lot of attention, so I don’t necessarily think that we will slice that area, and I would expect a big fight if we got anywhere near that general vicinity. While European bonds have risen, they are still lower than US rates, as the terminal rate for the Federal Reserve is now expected to be closer to 6%.


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