04.05.202309:52 Forex Analysis & Reviews: Analysis of EUR/USD on May 4. USD falls following Fed's rate decision

Hi everyone! The EUR/USD pair maintained its upward movement that started on Wednesday. It also rose above 1.1000 and 1.1035. On Thursday, it is heading to 1.1105. A retreat of the pair from 1.1105 may help the US currency to recover. If so, the pair could fall to 1.1035. If it consolidates above 1.1105, it is highly likely to reach 1.1172.

Although the US released several important reports yesterday, traders were mainly focused on the results of the FOMC meeting and Jerome Powell's speech. As widely anticipated, the Fed raised the interest rate for the tenth time in a row, bringing it to 5.25%. Given that any rate increase signals hawkish moves, the US currency was supposed to rise. However, it, on the contrary, dropped. Bulls are still very weak. Jerome Powell hinted that the May rate hike may be the last. He noted that inflation is still far from the target level. Nevertheless, the regulator might shift to a dovish stance in June.

I have only one explanation for the fall of the US dollar yesterday. Traders factored in such a scenario a long time ago. This is why they simply ignored the Fed's rate decisions. There is no other reason why the greenback dropped after the rate hike. Yesterday, the US unveiled the Services PMI Index. The figure exceeded forecasts but it did not help the US dollar resume growth. The ADP report also topped expectations. USD bulls were also unable to take advantage of this positive data. Now, investors are awaiting the ECB meeting. EUR bulls continue to dominate the market.

On the 4H chart, the pair consolidated above the sideways corridor. It means that the price could hit 1.1273, the Fibonacci correction level of 61.8%. The bearish divergence of the MACD indicator benefited the US currency, pushing the pair to 1.0941, the Fibo level of 50.0%. A rebound from this level has already helped the euro recover. It advanced to the Fibonacci correction level of 61.8%. Now, there are no divergences in any indicator.

Commitments of Traders (COT):

In the last reporting week, speculators closed 1,147 long positions and 3,892 short ones. The mood of large traders remains bullish. The total number of long positions now amounts to 243,000, whereas the number of short ones totals only 74,000. The euro has been growing for more than six months but the fundamental background has started to change. It may lead to a fall in the pair. The ECB may hike the rate by 0.25% this week, which could spook the bulls. The difference between the number of long and short positions is threefold, which indicates the likelihood of a trend reversal. Now, bullish sentiment remains strong but the situation could change in the near future. In recent weeks, the euro has been hovering at high levels but failed to grow higher.

Economic calendar for US and EU:

EU – Services PMI Index (08:00 UTC).

EU – Markit Composite PMI Index (08-00 UTC).

EU – ECB's Rate Decision (12:15 UTC).

EU – ECB Monetary Policy Statement (12:15 UTC).

US – Initial Jobless Claims (12:30 UTC).

EU – ECB Press Conference (12:45 UTC).

EU – Christine Lagarde's Speech (14:15 UTC).

The economic calendar for May 4 is quite eventful. The influence of the fundamental background on market sentiment may be strong today.

Forecast for EUR/USD and trading recommendations:

It is recommended to open short positions if the pair retreats from 1.1105 on the 1H chart with target levels of 1.1035 and 1.1000. It is better to open long positions if the pair rises above 1.1035 on the 1H chart with the target level of 1.1105. It is now aiming at this level. If it climbs above this level, I would advise you to open new long positions if the price advances above 1.1105 with the target level of 1.1172.