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Fed’s Rhetoric Turns Hawkish

By InstaForex GroupForexJan 27, 2022 04:55AM ET
www.investing.com/analysis/feds-rhetoric-turns-hawkish-200616136
Fed’s Rhetoric Turns Hawkish
By InstaForex Group   |  Jan 27, 2022 04:55AM ET
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The US Fed left the benchmark rate unchanged. Judging by a great deal of speculation about the issue, the news should have led to a rebound in the currency market and a decline in the greenback. Instead, the US dollar showed a confident rise. The fact is that the regulator’s rhetoric has become hawkish.

Firstly, the FOMC decided to accelerate the pace of the QE tapering. The regulator will purchase $20 billion in Treasury securities and $10 billion in mortgage-backed securities from February. It means that the Fed will double the pace of the QE tapering. Secondly, the Fed dropped a hint that the interest rate would be raised in March. Earlier, inflation was the main reason for higher interest rates.

The US labor market indicators have reached the levels that allow the regulator to hike the benchmark rate. Further improvement in the labor market could lead to overheating. The consequences of overheating could be even more severe than ones of surging inflation.

In other words, the US Fed is strongly concerned about the issue and has no intention to delay the key interest rate hike until markets get ready for it. They have one month and a half to prepare for the event. It means that the US dollar is likely to gain in value.

The EUR/USD pair dropped below 1.1222 for the first time since November 2021. This means that the correction is over, and traders expect the trend, which began in June 2021, to continue.

On the four-hour chart, the RSI technical indicator downwardly crossed line 30. This points to the fact that the euro is oversold. Notably, traders may ignore the technical analysis amid high speculative activity under the current conditions.

The Alligator indicator went down on the daily chart and stopped crossing the moving averages. This, in turn, proves the end of the corrective movement.

Outlook

Although there are technical signals about a slowdown in the downward movement, speculators are still increasing the volume of short positions on the euro. In this case, the euro may continue falling to hit the local low recorded on Nov. 24. Once the euro touches this level, it may rebound.

In terms of the complex indicator analysis, we see that technical indicators are signaling short opportunities on the short-term, intraday, and mid-term periods amid the downtrend.

EUR/USD 4-hour chart.
EUR/USD 4-hour chart.

InstaForex Group

Fed’s Rhetoric Turns Hawkish
 

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Fed’s Rhetoric Turns Hawkish

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