The EUR/USD currency pair stood still for most of Thursday. However, the ECB meeting did provoke a logical growth. The most significant market movements occurred again during the American trading session, while the day before, the pair dropped following somewhat predictable yet surprising results from the Fed meeting.
Recall that the latest reports on the labor market and unemployment in the US fell short of expectations. The data did not allow for concluding that the labor market had begun recovering after three rate cuts by the Fed. These reports provided no clear indication of a shift in FOMC sentiment. However, alongside weak labor market and unemployment data, inflation is now virtually guaranteed to accelerate in the near future. In the end, inflation has become the Fed's priority. "Dovish" expectations have been diminished, rates have remained unchanged, and now, the Fed plans for a maximum of one rate cut by the end of 2026. Thus, the dollar has once again received support where it might not have had any.
US inflation will rise in the near future for two reasons. First, for four consecutive months, the Producer Price Index has exceeded forecasted values and continues to rise. In month-on-month terms, it was at 0.7% in February, while year-on-year it reached 3.4%. If producers are raising prices faster than the market anticipates, this means consumer prices will also rise more quickly than forecasts. This is even without accounting for the sharp spike in energy prices—the latest PPI report covered February, when there was still no conflict in the Middle East, and energy prices were at levels we can only dream of now.
As for the Fed, this time the central bank chose between supporting the labor market and economy and controlling inflation. Jerome Powell stated that price stability remains the Fed's primary goal alongside full employment, but if the central bank tightens its stance, it suggests inflation is a tad more important to the central bank. What more to add? Stephen Miran once again voted for a rate cut, and this time he stood alone. In principle, this is not surprising. Christopher Waller and Michelle Bowman are no longer in the running for the Fed chair position, so there is no longer a need to accommodate Trump at every meeting. We doubt that in the future, particularly in 2026, Bowman and Waller will be willing to support Trump's position, despite their "Republican roots."
Therefore, in the future, only two members of the Monetary Committee will be ready to vote for easing at each meeting: potentially Kevin Warsh and definitely Miran. For the rest of the governors, inflation will take precedence. Of course, Trump may initiate a new war, this time against the Fed. But so far, there seems to be no sense in that. He has not managed to fire Jerome Powell. He has not managed to fire Lisa Cook. He has not managed to sway anyone else from the FOMC to his side.
The average volatility of the EUR/USD currency pair over the last five trading days as of March 20 is 104 pips, which is considered "average." We expect the pair to trade between 1.1456 and 1.1664 on Friday. The upper linear regression channel has flattened, suggesting a potential trend reversal. The CCI indicator has once again entered the oversold area and formed a "bullish" divergence, which again warns of the potential end of the downward trend.
Nearest Support Levels:
S1 – 1.1475
S2 – 1.1353
S3 – 1.1230
Nearest Resistance Levels:
R1 – 1.1597
R2 – 1.1719
R3 – 1.1841
Trading Recommendations:
The EUR/USD pair continues to decline, which no longer resembles a simple correction. The global fundamental background remains extremely negative for the dollar. However, for several consecutive weeks, the market has focused solely on geopolitics, rendering all other factors irrelevant. If the price is below the moving average, short positions can be considered with targets at 1.1456 and 1.1353. Above the moving average line, long positions remain relevant, with targets at 1.1963 and 1.2085, but for this to occur, the geopolitical backdrop needs to improve.
Explanations for Illustrations:
- Price levels of support and resistance (resistance/support) – thick red lines, around which movement may end. These are not sources of trading signals.
- Kijun-sen and Senkou Span B lines – lines from the Ichimoku indicator transferred to the hourly time frame from the 4-hour. These are strong lines.
- Extremum levels – thin red lines, from which the price has previously bounced. These are sources of trading signals.
- Yellow lines – trend lines, trend channels, and any other technical patterns.
- Indicator 1 on the COT charts – the size of the net position of each category of traders.
