EUR/USD Forecast: Bulls cannot celebrate until Wall Street has its word
|- EUR/USD hit a 6-week high as markets changed their minds about the Fed.
- The focus turns final reaction from Wall Street.
- The technical picture is still bullish for the pair.
EUR/USD is trading in the mid 1.14002 after hitting a high of 1.1485, last seen on November 7th, in the aftermath of the Mid-Term Elections. Markets are still digesting the Fed decision from Wednesday.
The US Dollar initially rallied on the rate hike, the intent to continue with gradual rates, and the repetition that "risks are balanced." The dot-plot saw a downgrade from three to two hikes for 2019 while bond markets had already had doubts about a single rise.
To top it off, Fed Chair Jerome Powell said that the balance sheet reduction, also known as Quantitative Tightening (QT) would continue on auto-pilot. The comment sent stocks tumbling and completed the picture of a "hawkish hike."
The night turned into day, and the markets have a different perception now. While the ongoing QT is not helpful to stocks, the downgrade of rate expectations weighs on the USD and this change of heart sent EUR/USD to the highs.
Will the mood change again?
The ball returns to the US court, especially to Wall Street. As the analysis of the event continues pouring in, a final narrative will be set. Is the Fed still hawkish or is it dovish now?
Stocks remain highly volatile and may turn sour again. In the recent past, falling equity prices went hand in hand with a stronger dollar. EUR/USD will likely follow shares down. A rally will push it higher.
US jobless claims came out at 214K, within expectations and the Philly Fed Manufacturing Index missed with 9.4 points. These are not top-tier figures, leaving the focus on Wall Street.
There are no data of significance either, but the Euro outperforms some of its peers thanks to the European Commission's announcement that they will not punish Italy, that also came on Wednesday.
EUR/USD Technical Analysis
The 50 Simple Moving Average on the four-hour chart is crossing the 200 one, a bullish sign. The Relative Strength Index (RSI) is still below 70, thus not suffering from overbought conditions. Momentum remains strong. All in all, the bias is bullish.
1.1475, a mid-November high, was breached only temporarily and remains relevant. The round number of 1.1500 was the high point in November. 1.1550 and 1.1625 capped the pair earlier, serving as lower highs.
1.1440 was the high point on Wednesday. It is followed by 1.1430 which capped the euro/dollar pair earlier in December. 1.1405 and 1.1360 are next.
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