The Euro is trading nearly flat early Thursday as traders decide whether to chase the single-currency higher after yesterday’s impressive short-covering rally.
The currency pair climbed sharply on Wednesday after the Federal Reserve raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years. Traders showed little reaction initially to the move since it had been priced in for weeks.
However, a strong short-covering rally was fueled after Federal Reserve Chairman Jerome Powell indicated that the central bank won’t get even more aggressive in raising rates.
Shorts were spooked by Powell’s comments and the fact that the Fed did not deliver the shock and awe that many bearish traders had expected. Nonetheless, the rally was not as pronounced as the move by the Australian and New Zealand Dollars because no one is certain when the European Central Bank plans to raise rates to fight inflation. In those two countries, at least we know rates are going higher.
Traders reaction to that pullback zone will then determine the next major move. Countertrend buyers are either going to come in or sellers will retake the chart pattern.
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