EUR/USD rallies on dovish FOMC outcome

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    EUR/USD had been in a bearish drift leading into the meeting and announcements with the dollar index fractional elevated in a churning market, testing the 4hr 200 sma to the downside at 1.1071 prior to the release. However, EUR/USD shot up ahead of the meeting, perhaps on a leak, as the Fed left rates on hold and delivered a dovish outcome, in the fact.

    Even the most hawkish members of the board have scaled back their expectations in the dot plot from increase of just 0.5% rather than the full percentage point increase of Feds funds target rate in 2016.

    The key question leading into the release of no change was whether there inflation that the Fed needs to worry about, such as housing market picking up and whether the Fed is behind the curve currently?

    However, it appears that the Fed are more concerned about external economic developments and risks. There were changes in the language of the statement in respect of global and financial developments that continue to pose risks. Stocks have jumped and the euro rallied to 1.1187 so far, with two year yields lower than before on a more dovish than expected outcome.

    EUR/USD levels targets 1.1217 9th March high

    1.08000 is the key downside target and has been a supporting round number in the main since the Dec bullish spike and subsequent drift lower into 2016, bar the lows of 1.0710 on 4th Jan in the Chinese debacle sell-off. Indeed, the EUR/USD's sharp and post ECB drop took it to 1.0822 before it reversed its trend and rallied hard to1.1200 region, setting the ceiling.

    On a sustained upside rally through recent 1.1217 high, the key levels overhead are with the seven-month resistance line at 1.1314 and also the February high at 1.1377, according to Karen Jones, chief analyst at Commerzbank "Further up lurk the September and October highs at 1.1460/95."
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