- The EUR/USD rallied a bit during the trading session on Tuesday, as the CPI number came out at 7.1% year-over-year in the United States.
- This was less than the 7.3% expected, so therefore people started to sell off the US dollar as they are already trying to front-run the Federal Reserve.
- The Federal Reserve more likely than not will not change its monetary policy anytime soon, so the fact that we pulled back from the highs of the day should probably not be a huge surprise.
Looking at the chart, the 1.06 level is an area that of course has been very important, as it has been both support and resistance previously, and now that the market has pierced that level, it could be opening the possibility of a move toward the 1.08 level. However, the Federal Reserve meeting on Wednesday will certainly have something to say, and of course, the European Central Bank meeting on Thursday will also do the same.
Volatility Ahead
The 50-Day EMA sitting underneath is racing toward the 200-Day EMA, but it still has a way to go before you get the so-called “golden cross.” With, a lot of people will look at that is a very bullish sign and a longer-term trend change. That doesn’t necessarily mean that it will be, just that people will start to look at it through that prism.
The biggest problem with trading this market right now is the fact that we are bouncing around between 2 central bank meetings, so that of course suggests that we could get a lot of volatility, but by the end of the week, we may get an opportunity to see a bigger move given enough time. If we break down below the 200-Day EMA at the 1.04 level, then it opens the possibility of a move to the downside. If we were to break above the 1.08 level, that would be an extraordinarily bullish sign, and that could also bring in the idea of a longer-term trend change.
We will need to see what the statements have to say from both central banks because the interest rate hikes themselves are already priced into the market. Hopefully, we should have a bit of work clarity in the next couple of days, as we then head into the holidays with less liquidity.
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