by Hao Sun

The Fed increased the interest rate by 25 basis points today, as expected. But what was unexpected was the reaction - the USD is losing ground against almost all of its major trading partners.  The usual logic for traders is that higher interest rates should mean stronger USD. So why did the USD buck the natural trends of the forex market?

A key to trading successfully is not to get locked into the “why the price moved in certain way” approach. Instead, we recommend paying more attention to what could happen in the future – in other words, “how can I profit from the market now?”

So without getting into fundamental analysis, instead let’s dive deep into what the charts are telling us to answer the most important question for traders: “What’s Next for USD?”

EUR/USD, one of the most liquid USD pairs, has been holding on solid ground at 1.0500 for five months in a row now. A temporary dip below 1.0500 in December and January could be treated as a false breakout. Price is now moving away from this key price level. The daily chart has reversed into an uptrend, even before today’s FOMC interest rate decision. Therefore, I anticipate EUR/USD strength to continue at least till the end of this week, with a potential short-term profit window towards the 1.0800 major resistance level on the weekly chart. 

USD/JPY has also been dragged down by today’s interest rate decision. But this sign of weakness was already foreshadowed on the daily chart on 10th March, 2017. A strong rejection candle formed just below the 115.00 level, which is at the top of the daily chart consolidation.

Today’s strong downward movement may trigger another selling wave in USD/JPY towards the bottom of the consolidation at 111.70 - and that’s, a potential 250 pips profit window. The longer-term monthly chart also confirms the weakness over the past two months. The January candle was a strong red signal, which gave back all the gain in December. The February indecisive candle, signals the currency’s inability to rally. And this month’s candle shows a break indicated above the high of February candle, but being rejected. The candle story on the USD/JPY monthly chart also points to USD intermediate-term weakness.

The rest of the USD major pairs share the same sentiment. The AUD/USD is pressing against the weekly resistance at 0.7700 and building up momentum for a breakout. The NZD/USD is climbing above 0.7000 now, while the USD/CHF is trying to dip below the 1.0000 parity level again. GBP/USD and USD/CAD are both moving away from their major support/resistance on the weekly charts.

So, what’s next for USD? Turn to the chart for answers.