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EURUSD: risks of a correction to 1.1780 ahead of Fed decision


On Wednesday the 13th of June, trading on the euro closed up. The euro recovered to 1.1793 just before the announcement of the Fed's interest rate decision. Volatility spiked when the Fed decided to raise the benchmark interest rate 25 bps; from 1.75% to 2.00%.

The euro dropped from 1.1793 to 1.1725 (-68 pips). The market had ample time to brace itself for the rate hike. Long positions on the dollar resulted from talk of the high probability of four major rate hikes this year, creating quite the volatile situation. Within the span of an hour the price rose from 1.1725 to 1.1801. I believe that the rebound was caused by a drop in US10Y bond yields. Euro bulls are fired up ahead of the ECB meeting.

Day's news (GMT+3):

  • 11:30 UK: retail sales (May).
  • 14:45 Eurozone: ECB interest rate decision.
  • 15:30 Eurozone: ECB monetary policy statement and press conference.
  • 15:30 Canada: new housing price index (Apr).

Fig 1. EURUSD hourly chart. Source: TradingView

Current situation:

The price has been trading in a sideways trend over the last several days with a range of 1.1730 - 1.1820. The price fluctuations amount to about 67 degrees. Now, investors' attention is focused on the results of the ECB meeting.

Above I wrote that the ECB is not planning on changing the interest rates. After the announcement of the results of the most recent meetings, the euro has risen by 20-40 pips. Given that we are awaiting the details of the curtailment of the QE program, volatility on the euro today is set to go through the roof. Traders and investors will have all eyes on Draghi's press conference.

Mario is unpredictable, so today's chart is without a forecast. I have not yet learned to predict candlesticks with long shadows. Due to false breakouts, I've adjusted the trend line several times. Now it's passing through 1.1738. The resistance zone is between 1.1835 and 1.1840. There is a risk of a correction to 1.1780 just ahead of the interest rate announcement.

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