EUR/USD hits downside target on Fed-driven dollar surge

<p>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 […]</p>

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.

EUR/USD Daily Chart


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).

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.