EUR/USD Headed Back to 1.08

EUR/USD Headed Back to 1.08

EUR/USD Headed Back to 1.08

Lower highs and lower lows post FOMC are a signal that the EUR/USD is poised for further losses. Fed Chair Janet Yellen gave investors a green light to buy U.S. dollars today after she made it very clear that the Fed has not been discouraged by recent data and are optimistic about the outlook for the U.S. economy. In fact raised their 2016 GDP forecasts and lowered their jobless rate estimates. They are still looking to raise interest rates 4 times next year, which is more aggressive than most people anticipated. This was not a dovish hike and the positive tone of Yellen’s testimony suggests that they are not overly concerned about the negative impact of low oil prices and strong dollar on inflation. Dollar bulls were vindicated by today’s events and anyone who has moved to the sidelines may be thinking about reestablishing their long positions. Meanwhile the latest round of Eurozone data was mixed. Manufacturing activity in German and France accelerated but service sector activity slowed. The trade balance also missed expectations while CPI fell less than expected. The German IFO report is scheduled for release tomorrow and even if it is good, we don’t expect a significant rally in the euro.

Technically, the recent rally in the EUR/USD stopped right at below the 100-day and 200-day SMA. The latest decline has taken the pair back below the first standard deviation Bollinger Band and 50-day SMA. The next stop appears to be 1.08 with resistance back at this month’s highs.

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