Reviewing FOMC Decision
The Federal Reserve decided to raise the Fed Fund Rate by 25bps as widely expected. However, one of the members has voted in favor of keeping the rates unchanged.
Moreover, the Fed left the economic projections unchanged in March compared to December’s meeting. In addition, the Dot Plot chart showed only a slight change, showing a possibility of two additional rate hikes this year, instead of three hikes as mentioned in December.
As warned many times in our previous reports, the US Dollar index tumbled across the board, declining all the way back to 101.60’s right after the decision, as the Fed members were less hawkish than anticipated.
USD Index Head And Shoulders Patter Is Still Alive
Looking at the same daily chart, the right shoulder of this pattern has been confirmed, especially after yesterday’s decline.
The invalidation level of this pattern is a weekly close above 102.0. Otherwise, the downside trend is likely to accelerate soon.
The next immediate support stands at 100.50 followed by 100.0 barrier, which should be watched very carefully, as a break through that support would clear and confirm the head and shoulder patter, which is set to target 99.0 areas.
Bank of England Decision Ahead
In the next few hours, all eyes will be on the Bank of England decision. For the time being, the estimates point to no change.
However, we will be looking for more clues and information about the Bank of England estimates for inflation, growth and its input about the recent slowing down in wages growth.
Moreover, the recent spike in inflation also needs clarification from the Bank of England.
The CPI YoY edged higher to 1.8%in January, posting the third monthly increase in a row and the highest reading since June of 2014.
In addition, the Core CPI YoY held at 1.6% for the second month in a row, which represents the highest core inflation reading since August of 2014
GBP & Article 50 Trigger
The British Pound spiked yesterday right after the Federal Reserve’s decision, rising to the highest level in a week, touching 1.23.
The spike came right from its sideway trend support area, which stands at 1.21 as shown on the chart. The technical indicators were oversold, which increased the chance for the current bounce.
However, despite the current move, traders should keep in mind that the currency remains weak and likely to remain weak in the coming weeks and months, as Article 50 is about to be triggered by the British government any moment.
With the current policy of the Bank of England, combined with the negative Brexit effect on the UK, that British Pound is likely to weaken even further. Therefore, selling rallies remains the preferred strategy by the majority of traders.
Yet, there is still room for a possible bounce in the coming days, which likely to be limited below 1.2336 and/or 1.2408 which represents its 38.2% and 50% Fibonacci retracement from the recent decline (from 1.2710 high to 1.2108 low) as shown on the chart.
Despite the fact that our bearish outlook remains unchanged toward the US Dollar Index, yet, this doesn’t mean that GBP trend will change to positive anytime soon. The possibility for a further decline in GBP is greater than a possible change in the current down trend.
However, 1.21 remains a solid support area, which everyone is looking at, as a break through that support would clear the way for a deeper decline, probably toward 1.20 psychological support and probably below that support.
