- March 18, 2021
- Posted by: Analysis Team
- Category: FOREX, Technical Analysis
The euro erased some of the gains made yesterday as the market digested the Federal Reserve interest rate decision. The Fed left interest rate and quantitative easing policies unchanged and upgraded its outlook for the economy. It expects the economy to grow by 6.5% this year after contracting by 4% in 2020. Notably, the bank expects to leave interest rates at the current level for a few more years in its bid to support the economy. The euro also reacted to a statement by Christine Lagarde, who urged European governments to provide more fiscal support to boost growth. Specifically, she urged them to avoid delaying the $896 billion recovery fund passed a few months ago.
The Swiss franc declined slightly against the US dollar as traders reflected on the latest trade numbers and producer price index figures from the country. While the Swiss economy is on a recovery path, its inflation is still low. The PPI declined from 0.3% to 0.0%. This led to an annualised decline of 1.1%. Recently, data showed that consumer prices were below 1%. Further, the country’s trade surplus narrowed from 4.97 billion francs to 3.69 billion francs. Analysts expect the country’s economy to keep growing as the government continues its vaccination drive.
The British pound rose after the Bank of England (BOE) delivered its interest rate decision. The bank left interest rates unchanged at 0.10%. It also left the ceiling of its quantitative easing policy unchanged. All nine committee members voted for the extension of these policies. The decision comes at a time when the UK government is continuing with its vaccine drive and its fiscal policies. For example, it recently extended its furlough program until September, a fact that will expand the country’s debt.
The GBP/USD jumped to 1.4000 yesterday after the Fed decision. Today, it erased some of those gains and is trading at 1.1.3975. On the hourly chart, the pair has formed a cup and handle pattern. Indeed, this retreat is part of this pattern’s handle. The upward trend is also being supported by the 25-day exponential moving average (EMA) while the Relative Strength Index (RSI) is slightly below the overbought level. Therefore, the pair may rebound as bulls attempt to move above 1.400.
The EUR/USD pair formed a bullish flag pattern yesterday before the Fed decision. It then rallied to a high of 1.1990, which is in line with what the pattern predicts. Today, the pair dropped to 1.1938, which is slightly above the 23.6% Fibonacci retracement level. It is also slightly below the middle line of the Bollinger Bands. Therefore, the pair may retest the upper side of the flag pattern and then resume the upward trend.
The DAX index rallied today after the Fed decision and the appeal for more stimulus by Christine Lagarde. It rose to €14,772, which is the all-time high, helped by automakers like Daimler and Volkswagen. The index moved above the ascending triangle at €14,173 this month and it remains above the 15-day and 25-day moving averages. The MACD signal and histogram are also above the neutral line. Therefore, the index may continue rising as bulls target the next key resistance at €15,000.