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EUR/USD shocked by the Fed

Tonight EUR/USD picture changed at once: the pair jumped from the $1.2800 area to $1.3200 (61.8% Fibo) on the dovish FOMC meeting minutes and Bernanke’s speech. On Thursday the pair is correcting lower, returning below $1.3050 (below 50% Fibo of the recent decline).

Mr. Bernanke has put the QE tapering prospects on doubt, setting the way for a further EUR/USD upward correction. That’s what how analysts at Societe Generale comment the situation: “It’s mostly a case of squeezing positions which had built up, rather than anything more fundamental about the Fed stance. The reactions of the market are fairly intense to small Fed nuances. Short-term USD selling may prolong until we hit another bout of very decent US data”. Nomura analysts agree: they maintain their 60% forecast of QE tapering in September and 40% - in December.

We’ll be carefully watching the today’s daily candle: how will the market digest the news after a first shock? The pair is now forming a bullish daily candle with a very long upper shadow – that shows bulls are losing positions and means the EUR/USD sell-off could continue in the coming days. Resistance is seen at $1.3080, $1.3100, $1.3150 and $1.3200, while support – at $1.3000, $1.2950 and $1.2850.

Watch the ECB monthly bulletin in EU and unemployment claims and Federal budget balance in the US later in the day.

Chart. H4 EUR/USD


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