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EUR/USD: Heavy on FOMC/ECB divergence, 50-DMA eyed

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 17, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - EUR/USD’s upward spike in a knee-jerk reaction to the Fed hike decision was short-lived, and the prices fell back in the red as the USD bulls returned after the Fed remains on track for gradual rate increases in future.

    EUR/USD losing sight of 1.09 handle

    Currently, the EUR/USD pair drops -0.50 to 1.0858, having met fresh supply near hourly 20-SMA at 1.0922 in opening trades. The main currency pair came under pressure largely on the back of divergent monetary policy outlooks between the Fed and ECB. The US central bank finally hiked the rates in almost a decade and maintained the tone for further gradual rate increases over the few years depending on the performance of the economy. While the latter slashed the deposit rates and extended the timeframe of the QE program.

    Thus, the interest rate differentials become more prominent now than before, favouring the USD bulls at the expense of the common currency. Moreover, the Fed’s lift-off and the subsequent DOT chart points to a stronger US economy that can support a series of gradual rate hikes over the next few years.

    Meanwhile, markets may continue to digest the Fed’s historic rate hike as dust slowly settles, with the focus now shifting back to the fundamentals from the Euroland and US due for release later today. German Ifo along with Philly Fed’s manufacturing index and weekly jobless claims are lined up for release this Thursday.

    EUR/USD Technical Levels

    The pair extends losses, with the immediate support placed at 1.0835 (50-DMA), below which 1.0800 (round number) could be tested. On the flip side, the immediate resistance is seen at 1.0922 (1h 20-SMA). A break beyond the last, doors will open for a test of 1.0962 (1h 100-SMA).

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