We had a pretty interesting end-of-day session yesterday as the Fed delivered a 25 basis point cut as expected. Despite the cut, we later saw a reversal on the dollar, with the dollar index hitting new 2025 lows as we discussed earlier, and then bouncing back.
The reason for this reversal was that Powell clearly sounded concerned about inflation, so the tone was not dovish at all. In fact, he gave the impression they will be very careful with lowering rates in the coming months. That’s why we are now seeing some stabilization on US yields, while the dollar index is coming higher a bit. I’m afraid, if we see a bit more gains toward the end of the week on the dollar, then I would say that the low is already forming. It will be a challenging road ahead.
So if Dollar will stablize, I want to be prepared, so I am looking at the EURUSD, which is also on the rise and finally moved to new highs of 2025, but keep in mind that despite this push higher, prices are in wave “c” of wave five, the final leg of an ending diagonal. Ending diagonals are usually strong but also reversal patterns, meaning upside could be limited in the near future. Ideally, we may even see a deeper retracement in the rest of the year, especially as the rise from the January 2024 lows could be coming to an end. Divergence on the RSI also suggests bulls are getting tired up here. 1.19-1.12 is strong resistance area.
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