The dynamics of the foreign exchange market can be used as an early indicator of sentiment. It shows some craving for profit-taking from a recent rally at the beginning of the week. It is possible for correction to prevail in the market until the Federal Reserve announces its decision on the rate. Investors lurked in anticipation of further signals on the Fed policy.
The chances of a rate hike began to grow at the end of last week, but this is not a reason to allow the Fed to adjust its policy this week. At the moment, the likelihood of such a scenario is a negligible 9-10%, and this is an important signal from markets that do not expect a rate cut.
Traders will be most interested in the accompanying comments of Fed officials. Based on the strong labor market data on Friday, the Fed may release a favorable economic outlook. Activity in the sectors of production and services is also improving, which should be reflected in the economic estimates of the central bank. An optimistic statement on monetary policy may help the US dollar resume growth, which so far has fallen against a basket of key competitors.
With an increase in risk, the dollar index fell to the technical level of 96.75, which is more than 23% of the total scope of the March movement. Attempts at consolidation are now noticeable. A short-term upward correction is possible, after which the dollar decline is likely to continue. This is due, in part, to the fact that US monetary policy still remains more aggressive even after the European Central Bank announced new measures to support the economies of the bloc.
Previously occupied long positions in the euro and pound against the US dollar remain relevant. Meanwhile, the British currency still reveals that its potential is worse than the European one, but has every chance of catching up with the euro. The pound is rising thanks to hopes for a Brexit deal. At the same time, the fourth round of negotiations between the UK and the EU ended last Friday with no progress.
Recent changes in the cost of sterling indicate that its price has already included a lot of bad news. This makes the British currency more sensitive to positive news in the near future.
The purpose for continued growth of the GBP/USD pair after the correction is the level of 1.2800. Do not exclude the scenario of depreciation towards support in the region of 1.2530.
In general, the growth potential of some currencies may be exhausted. The EUR/USD pair suspended its advancement after eight days of growth. This is due to Friday statistics on the US labor market. In addition, all the positives from the ECB and the efforts of the eurozone finance ministers to stimulate the region’s economy have already been taken into account in the quotes of the main pair.
At the moment, it is clear that the EUR/USD pair has received support at 1.1280 and continues to go up. It is possible to move towards the level of 1.1366, then a link of decline to 1.1321 is not excluded. The pair could trade for quite some time in the area of these marks. After their range goes up, the road will open to the level of 1.1460. With the exit down – the path to 1.1222.