EUR USD hits downside target on Fed driven dollar surge

EUR/USD hit its downside target of 1.0800 on Thursday as the US dollar soared in response to the US Federal Reserve raising interest rates on Wednesday for the first time in more than nine years.

This past week has seen a marked drop for EUR/USD in the immediate run-up to and aftermath of the Fed’s highly anticipated rate decision. The unanimous decision to raise rates was accompanied by somewhat more hawkish projections for further rate hikes in 2016 than had been expected, prompting a delayed surge for the US dollar against other major currencies on Thursday.

Since the beginning of the week, EUR/USD has retreated from a major resistance area just below the key 1.1100 level and 200-day moving average. Prior to this retreat, the currency pair had been rising in a pre-Fed dollar pullback that had been sparked by weaker-than-expected stimulus measures from the European Central Bank (ECB) in the beginning of the month, prompting a short-squeeze for EUR/USD. As noted, however, this week’s fall has pared much of the gains made during that rise.

As of this writing, the currency pair has now dipped under its 50-day moving average and has reached its noted downside price target of 1.0800. With marked divergence in monetary policy clearly continuing to prevail between the Fed and ECB for the foreseeable future, despite the ECB’s recently weak easing actions, EUR/USD could continue to be pressured towards new lows.

In the event of a sustained drop below the 1.0800 support level, the next major downside target is at the key 1.0500 support level, which was first established earlier this year when the currency pair formed a rough double-bottoming pattern, and closely approached in early December before the noted ECB-driven rise.

For any further decline below 1.0500, which would essentially confirm a continuation of the long-term bearish trend, further downside targets reside at the 1.0200 support level followed by parity (1.0000).