There is no doubt about the fact that the dollar is overbought, but the problem is that the economic reports prevented even a semblance of a correction. All hopes were pinned on the European Central Bank's meeting, and now the central bank has increased borrowing costs by a combined 4.50 percentage points. Everything happened as expected, but the dollar rose after the announcement. It all comes down to the content of the official press release, which almost explicitly states that this rate hike is the last. During the subsequent press conference, ECB President Christine Lagarde tried to ease the situation somewhat, stating that further rate hikes are possible, but only if inflation rises. However, she accompanied this statement with a caveat that the central bank is taking a pause for the time being to assess the effect of the measures already taken. In other words, the issue of interest rates will be considered only in three months, and given the current inflation dynamics, there is no doubt that by that time it may fall even below the current level of the rate. So there is a high probability that the ECB may start lowering interest rates at the beginning of 2024, while the Federal Reserve will continue to tighten its monetary policy.
However, the dollar has become way too overbought, and the market will desperately attempt some sort of correction. It is quite possible that today's US industrial production data, which is estimated to accelerate from -0.2% to -0.5%, may provide that chance.
The GBP/USD followed the EUR/USD and headed lower. As a result, the local low of the downward cycle was updated.
On the four-hour chart, the RSI technical indicator shows that it has touched the oversold territory, which signals an excessive amount of short positions.
On the four-hour chart, the Alligator's MAs are headed downwards, which corresponds to the direction of the main cycle.
Outlook
In this situation, dollar positions are overheated, which may indicate the possibility of correcting to the 1.2500 level. However, there's also the possibility that speculators will ignore the USD's oversold conditions, and while the quote continues to stay below 1.2450, this could extend the downward cycle.
The complex indicator analysis unveiled that in the short-term period, technical indicators point to a possible correction. Meanwhile, in the intraday and mid-term periods, the indicators are reflecting an upward signal amid a rise in the volume of long positions.
