close icon

4 Pairs Before and After the Fed Rate Hike

Predicting the Fed rate hike is not the same as predicting the market’s reaction to it

The benchmark interest rate of the Federal Reserve is now 1% after the central bank hiked by 25 basis points on Wednesday. And while the Fed rate hike was virtually guaranteed, the Forex market’s reaction to it came as a surprise to a lot of people. Common economic sense suggested the dollar should rise against other major currencies, but what we saw in reality was exactly the opposite. EURUSD and GBPUSD rose sharply, while USDJPY and USDCAD plunged following the Fed announcement, leaving news-interpreter scratching their heads in bewilderment. If it was not the Elliott Wave Principle, we would be quite surprised by the market’s reaction on Wednesday, as well.

Below you will see 4 before-and-after charts of EURUSD, GBPUSD, USDCAD and USDJPY, showing two things: first, you do not need to wait for the Fed, in order to get an idea of where the market is going, and second, you could sometimes be weeks ahead of the news. The first pair of charts is of EURUSD. The “before” chart was sent to clients ahead of the market open on Monday, March 6th.
fed rate hike eurusd before and after
As visible, while the exchange rate was hovering near 1.0615 two weeks ago, we thought a significant recovery should follow, because the decline between 1.0828 and 1.0493 has been limited to just three waves. In addition, the 61.8% Fibonacci level was expected to act as a strong support. Two weeks and one Fed rate hike later, EURUSD climbed to 1.0782 so far.

GBPUSD is even more interesting. Leaving the Fed aside, the pair had another logical reason to crash in the face of the just-approved activation of Article 50 and Brexit. However, it appears the market does not care about logic.
fed rate hike gbpusd before and after
The first chart of GBPUSD, sent to clients before the open on March 13th, shows that according to the Wave Principle, the pair was likely going to decline to the area near 1.2100, but as long as 1.1987 was safe, a bullish reversal was supposed to occur. The “after” chart allows us to see that GBPUSD fell to 1.2109, where the bears suddenly went out of power and made way for a rise to 1.2398 as of today.

The next pair of charts visualizes USDCAD’s post-Fed plunge, that was actually predicted during the weekend. In other words, three trading days before the Fed rate raise.
fed rate hike usdcad before and after
USDCAD was calmly trading near 1.3460, but once Janet Yellen started speaking, the bears woke up to cause a selloff to 1.3276, from which the pair has not yet recovered. Instead of buying, that triangle in the position of wave B warned us to be careful. As the theory postulates, triangles precede the last wave of the larger sequence. Here, the last wave is labeled as C, and it seems to have terminated at 1.3534. Hence, our negative outlook.

And last but not least – USDJPY. This pair has been a real headache even for experience Elliott Wave analysts, since it has been moving within a range between 111.60 and 115.50 for over two months. Fortunately, a pattern emerged just before the Fed rate hike, which allowed us to prepare for the 160-pip slump that occurred on Wednesday.
fed rate hike usdjpy before and after
The pattern in question was a leading diagonal, followed by a three-wave a-b-c correction, developing between the parallel lines of a channel. The channel’s upper line fulfilled its role as a resistance, discouraging those, who have been expecting the dollar to skyrocket against the yen after the Fed rate hike.

As it turned out, even if you know what the news will be, you might still not be able to correctly interpret them, simply because the market does not follow the same logic as we humans do. In our opinion, that is because each one of us has its own logic that usually differs from someone else’s. The good news is that with the help of the Elliott Wave principle, we could get an idea of what the irrational crowd is about to do, sometimes weeks in advance.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

GBPNZD Can Slide to Sub-1.9000 In Coming Weeks

What will EURUSD, USDJPY and USDCAD bring next week? That is the subject of discussion in our next premium analyses due out on Sunday! GBPNZD exceeded 2.0270 in mid-August, but the bulls could not keep the positive momentum. A month later, the pair fell to 1.9055, losing 6% in the process. And just when it…

Read More »

Ahead of EURUSD ‘s 280-pip Drop in September

EURUSD had been on a tear since mid-March when it bottomed out at 1.0636. Nearly six months later, on the first day of September, the pair exceeded the 1.2000 mark. The bulls seemed firmly in control and the Fed’s money printing suggested further losses ahead for the dollar. However, years of experience had taught us…

Read More »

Ahead of GBPUSD in Both Directions. Now What?

GBPUSD had a good run over the past six months, climbing from its 1.1412 March low to as high as 1.3483 last week. The pair is now back below 1.3000 after the latest portion of Brexit-related mess. Later in this article we will share our view of where the Pound is headed against the dollar,…

Read More »

USDTRY Set to Complete 12-Year Impulse Pattern

The U.S. dollar has been steadily climbing against the Turkish lira since 2008. Ten years later, in 2018, USDTRY reached 7.1500 on the back of geopolitical tensions and President Erdogan‘s reckless political decisions. In May 2019, however, the pair was down to 6.0600 and it looked like the Lira’s plunge might be finally over. Unfortunately,…

Read More »

EURUSD Up 420 Pips in a Month as Uptrend Resumes

The inevitable seems to be happening to the U.S. dollar. After record-breaking liquidity injections by the Fed in response to the COVID-19 crisis, the greenback is weakening across the board. The U.S. dollar has recently been declining against its major rivals, including the Yen, the pound and the euro. EURUSD, the most traded Forex pair…

Read More »

GBPJPY Bears Aiming at 120, Before Giving Up

Whether it is because of Brexit or not, GBPJPY has been trading below 160.00 ever since the referendum in June 2016. The pair has been locked in a wide range between 156 and 124 for four years now. Last week, it closed the session at 134.66, down from 138.84 at the open. In order to…

Read More »

Elliott Wave Setup Helps EURUSD Add 325 Pips

EURUSD has been under pressure for over two years now. The pair reached 1.2556 in February 2018, but has been making lower lows and lower highs ever since. Yet, the past couple of weeks painted a different picture. Between May 18th and May 29th, the euro surged 325 pips against the U.S. dollar. In those…

Read More »

More analyses