The dollar has surged significantly. What will be the outcomes of a large wave of the US currency rally for the euro? How long will it take speculators to break 1.1000?The Fed's hawkish rhetoric is common, however the dollar has risen dramatically as the regulator confirmed its plans to start policy tightening. Jerome Powell did not provide any new data to the markets. However, analyzing the information, there were some surprises. The Fed Chair's hawkish rhetoric was shocking.Investors got used to his dovish tone and veiled signals. However, the current situation is the opposite. Powell started to state facts clearly and describe the real market situation.The economy is stable and ready for tighter monetary policy. The Central Bank accepts that inflation is extremely high and intends to take appropriate measures. Asset purchases will be completed in March. Besides, the first rate hike will occur in the same period. Powell also stated that the rate could be raised by 50 bps.The Fed Chair added that the Fed's balance sheet would be reduced. However, he did not name the exact dates. Presumably, the reduction could start immediately after the rate hike. However, the US market formed a downtrend due to these facts. Treasury yields soared, followed by the dollar's increase. Moreover, the market's first reaction is often driven by emotion. On Thursday, Treasury yields corrected downward and the equity markets were likely to be optimistic.Markets are recovering and the move is like a technical rebound. The rate will be raised in March. Moreover, the Fed will continue to inject liquidity into the financial system, albeit in much smaller amounts than before. The money in the market should keep the quotes from a deeper and more prolonged decline.The dollar index has been soaring. It is bound to rise. On Thursday, it hit new highs, fixing beyond the value of 97.00. The nearest resistance is at 97.80 (June 2020 high). Besides, the next round level 98.00 is close.
Today, the US GDP publication is the major focus of attention. The dollar rose before the release. After its publication buyers of the US currency were confident about the Fed's tighter and faster rate hike. Therefore, 2021 ended spectacularly, despite the impact of the new coronavirus variant.
The US economy rose more significantly than expected in the fourth quarter. Its growth was 6.9% year-on-year, while markets were expecting a 5.5% increase. In quarterly terms, the figure was also high, 7% versus expected 6%.
According to the forecast, the euro bottomed out. Analysts again predict the level of 1.1000.
Today, the EUR/USD sellers broke quickly the psychological level of 1.1200, the quote also tested last July's low at 1.1180 and then went down.
If this tendency continues, traders can reach 1.1000 in the next few days. However, the 4-hour chart shows the signals of extreme oversolding of the pair. A technical correction is possible in the short term. However, the overall bearish sentiment will remain as long as the euro is trading below 1.1300.
Credit Suisse believes that the euro's correctional growth which continued since November has ended. The EUR/USD pair will resume its decline to 1.1019 and lower. After breakout of the July's low the sellers will target 1.1046, then 1.1019 and 1.1002. Additional catalysts will be necessary for further decline. The euro will most likely start consolidating in this area.
