The EURUSD reacted with a bearish tone to the FOMC Statement and press conference to the other day. However, all the dips have been bought so far, making the technical picture complicated to interpret.
The one thing that the EURUSD did all this summer was to move in a direct correlation with the stock market. In other words, any move lower on the EURUSD pair should come only if the stock market corrects. That is, if the positive correlation does not break for whatever reason.
It fell as low as 1.1740 and bounced just in time for the European stock market opening. This trend worked for all summer – the EURUSD pair traded with a bid tone on the London’s opening.
Fed Delivered Strong Forward Guidance
Fed delivered strong forward guidance, albeit many market participants expected some more in the form of additional easing. Forward guidance is something new, especially if it points to lower interest rates until the end of 2023.
However, as always, the markets wanted more and correct a bit. It remains to be seen if the stock market will shrug off the initial reaction and stretch towards the highs again.
One cannot wonder if the current ranges will not hold until the U.S elections are behind us. Until then, it may be that the EURUSD and the stock market will simply move sideways.
EURUSD Technical Analysis
The technical picture screams downside – but the price action finds support on every dip. Multiple factors on the daily chart point to a possible top, but there is still room for more consolidation.
On the one hand, the EURUSD forms a huge bearish divergence on the daily time frame with the RSI. That never led to something positive in the medium term.
On the other hand, there is a head and shoulders’ formation that feels incomplete. A powerful head and shoulder has similar shoulders. Therefore, there is still room for consolidation on the right shoulder – just up to the U.S. election? Bears should wait for the price to bounce above 1.1850 to trade the measured move, with a stop-loss at 1.2020.
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EURUSD Price Forecast