Towards the end of the trading week, the euro's short-term volatility has once again become evident. This behavior is reflected in the EUR/USD pair, which has recorded a depreciation of around -1.10% over the past two trading days. This shows a new selling trend that is currently present on the chart.
The selling pressure has intensified after the Federal Reserve's decision, which has strengthened the US dollar and prevented the euro from consistently regaining its position. If this situation continues, the downward pressure on the EUR/USD could also dominate the upcoming trading sessions.
The Fed's decision is determining the situation
The Federal Reserve's decision was announced in the US yesterday. The central bank left interest rates unchanged at its benchmark range of 3.75%, but the most important events occurred after this decision. The subsequent comments indicate that inflation remains a serious problem in the US and, for now, there are no clear signs that the 2.00% target will be achieved in the short term. This message has led the market to conclude that US monetary policy could be more hawkish than expected a few weeks ago.
This event has brought about a significant change in the probability of the Federal Reserve's upcoming decisions. Currently, there is a more than 51% chance that the Fed will raise interest rates by 0.25% at its meeting on September 16, which would take it to a new level near 4.00%.
This change is significant because it indicates a faster-than-expected rate hike and its probability has also increased significantly. Just a month ago, this same probability was about 21%. This reflects that the market is now expecting more hawkish action from the Federal Reserve in the short term, and not necessarily by the end of the year.
This new perspective is crucial for understanding the behavior of the dollar and the euro. One of the factors that has hindered the euro's continued strengthening against the US dollar is the interest rate differential between the US and Europe. While the US has maintained its benchmark interest rate at around 3.75% and is likely to rise to 4.00%, interest rates in Europe are hovering around 2.4%.
This difference is important because, unless there are clear signs of a decline, dollar-denominated investments may be more attractive than euro-denominated investments. This could increase demand for the dollar and limit the euro's recovery in the short term.
In fact, this has already been reflected in the demand for the US dollar following the Federal Reserve's announcement. Since the central bank's decision, the DXY (an index measuring the dollar's strength against its major rivals) has recovered significantly and is now above 100-points.
This behavior shows that demand for the dollar has strengthened again in the short term due to a possible new and more hawkish stance by the US central bank.
Therefore, the Federal Reserve's decision has strengthened the dollar again in the short term. As long as this expectation of more hawkish monetary policy persists and the interest rate differential between the two regions remains wide, it may be difficult for the euro to consistently regain its position. In this situation, selling pressure on EUR/USD may remain significant in the coming trading days.
A new bearish trend line is beginning to take hold: Since April, a bearish trend line has been forming in the moving average of EUR/USD. So far, this structure has been the dominant bearish technical pattern in the short term. In the absence of a significant upward correction, this structure may extend throughout the next few weeks of trading if the selling pressure remains stable. However, given the pace at which prices have fallen recently, there may also be scope for a short-term upward correction.
RSI: Currently, the RSI line is consistently below the 50 level. This indicates that the bearish momentum in the market has increased. If this trend continues, the selling pressure on the chart may remain significant.
MACD: The MACD is showing a similar situation, as its histogram is below the neutral zone of 0. This shows that the average strength of the short-term moving averages is in bearish territory and also highlights the importance of a potential bearish trend in the coming days.
Important Levels:
1.15905 – Relevant Resistance: This resistance level corresponds to the most recent high and is aligned with the descending trend line. A sustained recovery above this level could start to threaten the bearish structure and open the way for a significant buying trend in the coming days.
1.15371 – Proximity Barrier: This neutral level is close to the recent swing highs. It could serve as a test point for the formation of a possible short-term bullish correction on the chart.
This level is located near the recent price movement. It serves as an important indicator to check whether the price is able to start a bullish correction in the short term.
If the price can stay above the 1.15905 resistance level sustainably, the bearish structure will start to weaken and a strong bullish movement will be created.
This level can give an early indication of the direction in which the price may go. A strong reaction here can create short-term trading opportunities.
1.14767 – Specific Support: This level corresponds to the lowest level of a broad sideways channel observed over the past few months. Currently, this is the most important bearish barrier to watch on the chart. A price movement below this level could further clarify the strong selling trend and further strengthen the bearish trend as the main pattern for the coming weeks.
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