EUR/USD Analysis: Post-FOMC slump stalls near 200-DMA/50% Fibo. confluence region

• EUR/USD witnessed some heavy selling on Wednesday amid a broad-based USD rally.
• The Fed’s hawkish turn pushed the US bond yields and the greenback sharply higher.
• The pair, so far, has managed to defend a support near the very important 200-DMA.

The EUR/USD pair came under some intense selling pressure during the latter part of the trading action on Wednesday and dived to sub-1.2000 levels for the first time since early May. A sudden hawkish turn from the Fed triggered a massive rally in the US dollar, which, in turn, was seen as a key factor behind the pair’s sharp intraday decline. The Fed stunned investors and signalled that it might raise interest rates at a much faster pace than anticipated previously. The so-called dot plot pointed to two rate hikes by the end of 2023 as against March’s projection for no increase until 2024. Adding to this, seven FOMC members pencilled in a rate hike or more in 2022 as compared to four in March.

The Fed officials also upgraded the economic projections significantly for this year. The US GDP is estimated to grow 7.0% in 2021, up from the previous estimate of 6.5%, and 3.3% in 2022. On inflation, the headline CPI is expected to reach 3.4%, a full percentage point higher than the previous estimate. This comes on the back of the biggest jump in consumer prices in about 13 years in May. The Fed Chair Jerome Powell, however, still described the price increase as “transitory” at the post-meeting press conference. Nevertheless, the Fed’s super hawkish pivot pushed the US Treasury bond yields and the greenback sharply higher. In fact, the yield on the benchmark 10-year US government bond recorded the biggest single-day jump since early March and allowed the USD to post its strongest daily gains in 15 months.

As investors digested the post-FOMC volatility, the pair found some support near the very important 200-day SMA and was seen consolidating in a range through the Asian session on Thursday. Market participants now look forward to the release of the final Eurozone CPI figures. From the US, Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims might also provide some impetus. Apart from this, the US bond yields will influence the USD price dynamics and further contribute to produce some meaningful trading opportunities around the major.

Short-term technical outlook

From a technical perspective, the pair, so far, has managed to defend confluence support comprising of 200-day SMA and the 50% Fibonacci level of the 1.1704-1.2267 strong move up. With technical indicators on the daily chart holding deep in the negative territory, sustained weakness below will be seen as a fresh trigger for bearish traders. The pair might then accelerate the fall towards intermediate support near the 1.1955-50 region before eventually dropping to test the 61.8% Fibo. level, around the 1.1915 zone. Some follow-through selling below the 1.1900 mark should pave the way for an extension of the recent leg down witnessed over the past three weeks or so.

On the flip side, any meaningful recovery now seems to confront stiff resistance near the 38.2% Fibo. level, around mid-1.2000s. Any further positive move might be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.2100 round-figure mark. The latter is followed by the 23.6% Fibo. level, around the 1.2130-35 region, which if cleared decisively will negate any near-term negative bias. Bulls might then aim back to reclaim the 1.2200 mark and push the pair further towards May monthly swing highs, around the 1.2265 region.